It’s a relatively quiet morning ahead of this afternoon’s FOMC decision. A pro-risk tone overnight has U.S. equity futures up more than 1% and Treasury yields 1-2 basis points higher. The catalysts for the improved sentiment in risk markets was perceived further progress in Russia/Ukraine negotiations, as well as vows from Chinese officials to ease regulatory crackdowns in the real estate and technology sectors. The latter fueled a 9.08% rebound in the Hang Seng equity index, the biggest single-day gain for the index since the global financial crisis, and helped shift focus away from investor worries surrounding a Covid outbreak and potential assistance to Russia that had weighed heavily on Chinese stocks in recent days.  For today’s FOMC meeting, there will be, as always, a hyperfocus on the updated “dots”, but perhaps more important than the median FOMC participant forecast for the fed funds rate path will be the updated terminal fed funds rate assumption. In the last update in December, the median long-run (terminal) rate was 2.5%, but markets are currently pricing in a peak rate of 2.3%-2.4% in 2023 and falling closer to 2% in the out years.

Jason Haley
Chief Investment Officer