How have interest rate expectations changed after this week's events?

⦿ Executive Snapshot

• What: Interest rate expectations are shifting as central banks signal potential rate hikes.
• Who: Key players include the RBNZ, ECB, BoE, BoJ, BoC, RBA, Fed, and SNB.
• Why it matters: Changes in interest rate expectations can significantly impact financial markets and economic growth forecasts.

⦿ Key Developments

• RBNZ has a projected rate hike of 76 basis points with a 70% probability of no change at the next meeting.
• ECB shows a projected hike of 64 basis points with an 88% probability of a rate hike at the next meeting.
• Fed anticipates a 20 basis point increase with a 99% probability of no change at the next meeting.

⦿ Strategic Context

• Central banks are adjusting their rate expectations based on recent economic data and geopolitical tensions, particularly related to the US-Iran situation and oil prices.
• The upcoming June FOMC meeting is critical, as it will include the Summary of Economic Projections (SEP) and dot plot, which may signal a hawkish shift in policy.

⦿ Strategic Implications

• Immediate market reactions could occur if Fed officials, particularly Waller, signal a shift in focus towards inflation, indicating potential rate hikes.
• Long-term implications may include sustained higher interest rates if central banks maintain a hawkish stance amid resilient economic data.

⦿ Risks & Constraints

• Potential risk includes the impact of geopolitical events on economic stability, which could lead to unpredictable market responses.
• Central banks face the challenge of balancing inflation control with economic growth, which may lead to conflicting policy decisions.

⦿ Watchlist / Forward Signals

• Monitor Fed's Waller's upcoming speech for potential shifts in policy signals that could impact market expectations.
• The June FOMC meeting will be a key milestone to watch for updates on rate expectations and economic forecasts.