Markets shrug off the Fed’s hawkish pause

US interest rates were left unchanged last week for the first time in 15 months, but it was very much a hawkish pause, with the Federal Reserve indicating that there are two more rate hikes in the pipeline.

Investors had expected one more rate hike, not two. Nevertheless, markets were surprisingly calm, with stocks edging higher at the close of trading and advancing higher the following day.

Markets just don’t believe Fed chair Jerome Powell when he suggests two more hikes are coming.

A July rate hike is priced in, but a further increase is seen as distinctly unlikely, with investors betting the Fed is bluffing in an attempt to keep markets in check.

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Twelve of the Fed’s 18 members envisage two more hikes in 2023, but last week’s hawkish noises don’t appear to have quelled markets’ glass half-full rate outlook.