Gaining insights from an industry veteran helps to determine what the Fed might do this year when it comes to raising rates to curb inflation.

Sharing his views is the president and chief investment officer of RREAF Holdings, Doug McKnight, having an experience of more than 30 years in capital markets, with a focus on institutional trading of fixed income and structured debt and investment banking.

McKnight reflects that 2022 is a dynamic year and that things are definitely changing from coming out of a rather bull market at the end of last year and going into 2023 with interest rate pressures and inflationary pressures, and their effects on the capital market.

A quarter percent rate hike by the Fed is expected in February and March, according to McKnight. He said that we are seeing signs of a slowdown in the economy and the market is supporting only 25 basis points in next week’s rate hike. Once interest rates reached or exceeded 5%, he anticipated a pause in rate hikes.

That scenario will resonate on Wall Street, according to McKnight. The market will interpret that very favorably, he believes. Market participants will likely interpret this as the Fed paying attention and keeping an eye on the economy, rather than continuing to raise rates without seeing what the consequences are.

Different barometers make it harder to predict, he said. There is also a disconnect between what the market projects and what the Fed implies its targets are based on Fed Fund futures. Equities and the Treasury curve all reflect the market expectation of fewer and lower rate hikes. In McKnight’s opinion, it’s very likely that it will be the case unless we see a continual reversal in the economic data and the labor market strengthens.