The dollar yield curve prices in an official rate hike at the Fed’s June meeting. And after that? Although it also anticipates another rate hike before the end of the year, the probability assigned to it is reduced. The future evolution of this probability will depend on the message from the US monetary authority: its interpretation of economic data and how this translates into the speed at which the neutral interest rate level is reached.
The exceptionally expansionary monetary policy of the main central banks since the beginning of the crisis has influenced investors’ expectations, even if this was not their initial objective. It is now necessary to find a balance between the risk of slight short-term instability that normalization would bring, and the risk of medium- and long-term instability that maintaining exceptional measures entails.
