Message that rates will stay on hold clashes with 2023 cut bets

Federal Reserve Chair Jerome Powell has history on his side as he and colleagues split with Wall Street over how long interest rates will stay high in 2023.

After the fastest tightening of monetary policy since the 1980s, the central bank looks set on Wednesday to increase its benchmark rate by 50 basis points in a downshift after four straight 75 basis-point moves to curb inflation.

Such a move — widely flagged by officials — would lift rates to a 4.25% to 4.5% target range, the highest level since 2007. They’re also likely to signal another 50 basis points of tightening next year, according to economists surveyed by Bloomberg, and an expectation that once they reach that peak, they’ll stay on hold through all of 2023.

Financial markets agree on the near-term vision, but see a rapid retreat from peak rates later next year. That clash could be because investors expect price pressures to ease faster than the Fed, which worries inflation will prove sticky after getting burned by a bad call it would be transitory. It could also reflect bets that rising unemployment will become a more weighty Fed concern.

This week’s meeting in Washington is a fresh opportunity for Powell to hammer home his point that officials expect to hold rates high to defeat inflation — as he did in a Nov. 30 speech when he stressed policy would stay restrictive “for some time.”

Over the last five interest rate cycles, the average hold at a peak rate was 11 months, and those were periods when inflation was more stable.

“The Fed has been pushing the message that the

policy rate is likely to remain at its peak rate for a while,” said Conrad DeQuadros, senior economic adviser at Brean Capital