That’s the dominant view of about 350 respondents to an Instant MLIV Pulse survey in the hours that followed the Federal Open Market Committee meeting on Wednesday.
It’s in sharp contrast with the interest-rate swap markets, which remain eager to price in cuts this year. Poll respondents say what the Fed did and said today has left them more pessimistic about equity markets.
More than 70% of MLIV Pulse respondents said the Fed is not done with tightening policy yet. More than half expect the Fed to wait until next year for any monetary easing.
The survey results align with the view of Fed officials, but it pushes back on traders who amped up bets on rate cuts for this year — sending Treasury yields sliding — even after Wednesday’s hike and Fed Chair Jerome Powell’s subsequent comments.
Powell’s focus on the need to keep fighting inflation matched how MLIV survey respondents see the balance of risks. Some 39% said inflation remains the biggest danger.
“Rate cuts are not in our base case,” the Fed chief told reporters Wednesday, referring to the outlook for the rest of 2023. “That’s all I have to say.”
Swaps markets were pricing the Fed’s benchmark to peak around 4.95% in May, and then fall to about 4.2% in December — a very different trajectory from the one outlined by Powell and depicted in the Fed’s projections.
Stocks swooned during the afternoon, with the S&P 500 index closing 1.65% down, as the Fed’s announcements doubled up with comments from Treasury Secretary Janet Yellen — who told lawmakers that the government isn’t considering ‘blanket’ insurance for bank deposits.
Also running against trading trends in the post-Fed hours, some 53% of respondents said they expected a flatter yield curve as a result of Wednesday’s central bank moves.
The Instant MLIV Pulse survey was conducted among Bloomberg terminal users. For more markets analysis, see the MLIV Blog.
