There was a time a few weeks ago when the market was feeling confident about projecting a Fed pause at 4.75-5.00% or lower but the odds or another hike are rising.
Last week's CPI report along with strong retail sales and climbing energy prices is causing a rethink. Fed officials are increasingly repeating the line that they will continue to hike until they see meaningful progress on inflation. Further, global inflation numbers continue to run hot.
Fed fund futures for the May 3 FOMC are now showing 192 bps of hiking or a terminal rate at 5.003%. That implies a better-than-even chance of a hike beyond what the dot plot and Fed officials have signaled.
Along the same lines, BNP Paribas changed its call today:
"We now expect a terminal Fed funds rate of 5.25%, thereby lifting policy rates to a sufficiently restrictive stance to cause recession... The recession is likely to start around Q2 2023 and endure for three to five quarters."
That's not a pretty picture.
