Bank of America on Fed Funds for next year:
- We revise our rates forecasts higher across the curve
- now forecast 10y UST at 4.25% by end '24
- Our forecasts are below market forwards but above consensus, especially by end '24
- Our 2Y forecasts shade risks to a higher cutting trough than US economics baseline. This is due to risks of a higher nominal neutral rate, which the market currently prices. it also reflects risks that skew to a more resilient economy.
BoA on the risks they see:
- skewed to the upside
- We see risk to more growth momentum in rates market, stronger growth will mean higher rates vs our forecast.
- We also see risks from elevated UST supply which could keep long end US rates higher & the curve steeper vs our forecasts.
- Downside risks could stem from a sharper US economic slowdown or another round of bank stress