RATE REVERSAL

Since 1955, the Fed has unwound 86%, on average, of the prior rate hikes during the ensuing rate easing cycle, which we’re entering. This means the Fed funds rate bottoms out at 0.75%. The smallest historical reversal would suggest that Fed funds hits 2.25%. Yet the market is now expecting a Fed funds rate trough of 3.25%. This means there is probably way more easing to come than we expect.