Investors growing more fearful of a Fed mistake


Stocks have slipped, and bonds have rallied, since the Federal Reserve unexpectedly forecast two interest rate hikes in 2023, and one regional Fed president said the first increase could come next year.

A survey now finds “central bank policy error” is the third biggest risk to the market, behind only higher-than-expected inflation and bond yields, and new variants to the coronavirus that bypass COVID-19 vaccines. The Deutsche Bank survey of more than 400 participants found the percent flagging central bank mistakes as a risk has grown to 43% in June, from 39% in May and 21% in April.

The survey found 82% still expect inflation to rise after the COVID-19 pandemic, versus just 10% expecting deflation. A fifth, 21%, say U.S. inflation will average over 3% over the next 5 years, while 17% see inflation under the Fed target.

On Monday, the yield on the 10-year Treasury
fell further, sliding below 1.40%. Stocks slipped in Asia, notably in Japan where the Nikkei 225
dropped over 3%, though U.S. stock futures
were slightly higher.

John Williams, the president of the New York Fed, is set to become the first dovish member — outside of Chair Jerome Powell — to speak since the Fed decision, and Powell is scheduled on Tuesday before a House committee. St. Louis Fed President James Bullard, whose comments rattled markets on Friday, is also due to speak on Monday, alongside Dallas Fed President Robert Kaplan.


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