Back in December, Jan Hatzius, chief economist at Goldman Sachs, said the federal funds rate could fall to 3 to 3.25% by year-end, while BlackRock expected a pause at the start of the year and, with a new Fed Chair in place, a shift toward lower rates.
Fast forward to the end of May, and the narrative has completely flipped
Markets are now pricing in roughly a 70% chance of at least one rate hike over the next 12 months. Fed officials have also grown more hawkish, with Christopher J. Waller saying one additional hike is expected before year-end as inflation remains elevated, whereas Governor Michael S.
Barr warned that rising oil prices could lift inflation expectations, something the Fed will need to watch closely. No wonder yields on both 10-year and 30-year U.S. Treasury bonds have surged in recent weeks.