Morning Notes — Fed Expectations

Markets are currently pricing in 50bp hikes in June and July and 50/50 probability for 50bps or 25bps in September. The Fed kicks off QT today with markets assuming its balance sheet on longer-dated assets will shrink by $1T by the end of 2023.  These are hawkish Fed expectations, but the terminal Fed funds rate remains below 3% from a high of nearly 3.5% just 5 weeks ago.  Terminal Fed funds expectations declined from the peak when 10-year inflation breakeven yields broke below 280bps.  From an equity perspective, we care most about 10-year breakeven yields staying anchored below the 280bps level (now 267bps).