Powell's Plateau

The current consensus in the financial markets seems to be that the FOMC is done hiking the federal funds rate (FFR) after having raised it today by 25bps to 5.00%-5.25%. Furthermore, markets seem to be anticipating that the FFR will be falling soon. That's consistent with the widely held view that a recession is coming soon. It isn't consistent with Fed Chair Jerome Powell's press conference today. He acknowledged the possibility of a "mild recession," but he reiterated that inflation remains too high and that the FFR needs to remain restrictive enough to bring it down. If Powell and his colleagues conclude that 5.00%-5.25% is restrictive enough to do the job, then they intend to keep it there until it is clearly doing the job.

The FFR futures today showed the nearby contract at 5.05%, the three-month at 5.08%, the six-month at 4.84%, and the 12-month at 3.89% (chart). The two-year Treasury note is down to 3.84% from the year's high of 4.06% on March 2.