Investors are having to adjust to the prospect of interest rates across major economies staying higher for longer than expected, after central banks warned the battle against inflation is still not yet won.
In a pivotal week in the monetary calendar, the US Federal Reserve surprised markets when it signalled support for two additional interest rate increases in 2023, even as it skipped a rise in June and kept its target range of between 5 per cent and 5.25 per cent. In the press conference following the meeting on Wednesday, chair Jay Powell said inflation “has not so far reacted much to our existing rate hikes, so we’re going to have to keep at it”.
The news prompted traders in Treasury futures markets, who have long been expecting the Fed to have to make cuts later this year, to remove those bets.