TS Lombard warns Fed's peak rate could match or top 2023-24 highs

What happened

TS Lombard economist Dario Perkins said in an Oct. 27 report that the Fed's peak interest rate could match or exceed its 2023-24 high. The Fed raised its target rate by a quarter point in September to 3.75%-4.00%.

Confirmed

Global impact / market context

If rates climb higher than investors expect, borrowed money stays costly for longer. Companies would pay more interest on debt, leaving less cash available for hiring and expansion, while bond prices could stay under pressure.

Analyst inference

Market pricing points to a peak of 4.5%-4.75%, below the 5.25%-5.50% reached in 2023-24. TS Lombard argues investors may underestimate further tightening, and its official forecast is a quarter-point rise each quarter until something breaks.

Analyst inference

What to watch

1. The Fed's target rate sits at 3.75%-4.00% after a quarter-point September rise. Watch whether coming meetings deliver further increases toward or beyond the 2023-24 peak of 5.25%-5.50%. Confirmed
2. TS Lombard's higher-rate scenario, which it says is not a forecast, depends on the artificial intelligence capital spending boom continuing. Watch whether AI investment keeps growing despite market jitters. Proposed
3. TS Lombard expects the tightening cycle to end only when something breaks, possibly in early 2028 when the AI investment boom ends. Watch economic activity and inflation for signs of strain or relief. Analyst inference

Evidence

• seekingalpha.com