There are multiple other plausible scenarios for the trajectory of interest rates, though the drivers of uncertainty will shift notably away from the Fed. Whatever outcome eventually unfolds will be critical for the well-being of households, businesses, and investors.
A simple logic has played out in markets this month. Price movements point to an anticipation that the Federal Reserve is done raising interest rates and will now start cutting in early 2024, thereby pushing down market-determined yields as it continues to ease policy throughout the year; and that all this will bode well for the economy and virtually all financial assets.
Not so fast, unfortunately, for all of us who hope for greater certainty and less yield volatility.
