Source: Unigestion, Bloomberg as of 2 December 2021.
The world knows little about the Omicron variant at this time, and it will be a few more days until we understand its contagiousness, virulence, and resistance to existing vaccines. Uncertainty is never good for markets, and in the meantime, the virus will spread and likely trigger restrictions and headline risk.
However, the outlook for monetary policy seems more certain for markets. Recent hawkish comments from Fed Chairman Jerome Powell to members of Congress, which seem to have been prepared ahead of time, look aligned with market expectations, pricing interest rate lift-off for the middle of next year. As our chart shows, the first hike is essentially completely priced in for the June meeting and the market expects somewhere between two to three hikes for 2022. While Fed members’ expectations could change, the market is pricing significantly tighter policy than the median projection of one hike from the September meeting.
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