According to Federal Reserve Bank of St. Louis President James Bullard, it is appearing increasingly likely that there will be four rate increases in 2022 in the face of high inflation. While the unemployment rate may fall below3.0% this year, we have also seen a large reduction in the labor force participation rate which is creating a very tight labor market as well. In addition to rate hikes, the market is also predicting that the Federal Reserve will begin to reduce its balance sheet resulting in the Federal Reserve becoming a net seller of securities as opposed to a net purchaser. Risk markets continue to try and digest this information, but as of this insight, it appears they have some mild indigestion.
Source: WSJ