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Fed Rate Cuts in 2023 Priced Back In as Bank Worries Escalate

  • Expected peak in Fed’s rate retreats to around 5.4% in July
  • Two-year Treasury yields extend retreat from over 5%
Updated on

Derivative traders lost no time re-instating bets that the Federal Reserve will cut interest rates before the year is out.

As recently as Wednesday, a half-point rate hike this month was viewed as likelier than another quarter-point move and a rate cut later this year was counted out. But with rising borrowing costs subsequently taking the blame for the year’s first bank failure, pricing of swaps linked to Fed meetings shifted Friday to levels suggesting the central bank’s policy rate will peak at around 5.3% in June and end the year below 5%. It’s in a range of 4.5% to 4.75% now.