Persistent strength in the economy has wrong-footed bets that the Federal Reserve will make large interest-rate cuts this year, potentially undermining a key element of support for the 2023 stock rally. Derivatives markets show investors now expect the Fed’s target rate to sit at 5% at year-end, according to Tradeweb, up from just above 4% last month. Previous expectations that rates would fall before December helped boost markets this year, particularly shares of large technology companies. … Friday’s jobs report was just the latest setback for investors who have repeatedly underestimated U.S. growth in the face of rate increases. Inflation has also proved far more stubborn than investors had guessed it would be 12 months ago. Last summer, year-ahead inflation bets projected a rapid fall to the 2% inflation range beginning in the middle of 2023. The latest reading of the consumer-price index was 4.9%.
Source: WSJ.com: Markets
