[WSJ] Investors Bet Fed Will Need to Cut Interest Rates Next Year…….

In a nutshell (for those who are unfamiliar w/ swaps):

• Interest rate swaps – used by corporations/institutions to hedge risk associated with interest rates. Basically, issue bonds & pay at a fixed rate, enter the swap at a floating rate (future rates based on ffr implication/assumption by investors)

• Idea is to have a positive cash flows from the swap rates

Expected fed funds rate after 1 yr (July 2023) would be roughly 3% implied/assumed by the swap rates. I posted the link below, see the chart; Based on the swap rates, fed will cut rates by mid of next year by multiples of 0.25pp; *ffr expectations by the end of the year is at 3.3; By June 2024, rates would roughly be at roughly 2.5% (latest econ projection by the fed as well)

So, the fed drives us to recession to fight inflation in the short term, stabilize stocks, then it will constrain long-term rates by making a pivot;

which is,

bullish for risky assets mainly equities;

Also, I personally don't see the fed to keep driving the rates higher year after year; Remember July 2019?

I don't think it's as bad as it seems and shouldn't be feared. What's your take?

https://www.wsj.com/articles/investors-bet-fed-will-need-to-cut-interest-rates-next-year-to-bolster-the-economy-11658694486

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