Economists at Danske Bank find reasonable for the market to pull back on expectations for interest rate cuts next year. In their view, Federal Reserve needs to increase the real interest rate another 125 bps over the coming months.

Higher for longer

“A higher interest rate for longer looks to be the way forward for Federal Reserve. We expect it to hike Fed Funds rate at least another 125 bps and keep it here.”

“The market agrees and discounts another 121 bps hikes this year and now only discounts 14 bps of interest cuts next year from 50 bps in July.”  

“The US output gap turned positive and the economy needs a period of restrictive monetary policy to return to equilibrium.”