The market has been surprised by the level of hawkishness in the FOMC's dot plot. It indicates 7 rates hikes this year and a Fed funds rate at 2.8% at the end of 2024, which is above the Fed's long-term neutral rate.
The market has already adjusted from pricing in 7 hikes to 8 hikes.
The front end has been moving up in the past week as fears about the war in Ukraine cooled but this adds another leg and pushes it close to the key 2% level, where they haven't been since May 2019.
The dollar is broadly stronger in the aftermath of this. USD/JPY has rallied to 118.89 from 118.59 beforehand. That's indicative of a broad USD move.
The market is now pricing in a 63% chance of a 50 basis point hike at the next meeting on May 4.
Back in bonds, the long end is not moving up at nearly the pace of the front end. 10s are up 4.6 bps on the day to 2.21%, which is barely 25 basis points from inversion. The message is that inflation is nearing the point where it could force the Fed into tightening the economy into a recession.
