War Risk, Liquidity Squeeze Spur Bets on a Less Aggressive Fed
- Money markets cut estimate for Fed’s peak rate to 1.7%
- March half-point move, once expected, now seen off the table
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The bond market is dialing back expectations for how quickly and steeply the Federal Reserve will raise interest rates as Russia’s war in Ukraine threatens to exert a drag on global economic growth.
Money-market traders have priced out any risk that the U.S. central bank will start its tightening campaign this month with a half-point increase, which was once seen as a near certainty, and even a quarter-point move isn’t completely assured. At the same time, they have also marked down where the Fed’s benchmark rate will peak to around 1.7%, a drop of over 20 basis points from previous expectations and well short of the central bank’s 2.5% long-term estimate for the rate.