The market's regime change has mostly been driven by increasing inflation, higher interest rates to combat it, and the ensuing impact on stocks as they react to a greater cost of capital. According to market expectations, disinflation would arrive sooner and the Fed's ability to raise rates further would be more constrained. That hasn't happened, and rate increases throughout the globe are continuing as a probable earnings recession for the United States is developing before the end of this year.
The market is essentially providing room for the Fed funds rate to increase another 145 basis points before flipping over, as indicated by the 2-year Treasury yield, which is currently slightly under 4%. The market currently expects a 50% likelihood that the Fed would increase interest rates by 200 basis points to a range of 425–450 by the end of the year. during the next three meetings.
Details HereThe market's best estimate is that the Fed will raise rates by 75 basis points tomorrow, by 75 basis points again in November, and by 50 basis points in December.
The eurodollar curve displays the same pattern, and we can see that the market now genuinely "believes" the Fed after initially rejecting its rhetoric and predicting significant reductions in interest rates in early 2023. The market now expects the Fed to finish raising rates in March 2023 after reaching an estimated federal funds rate of 4.7%.

When inflation reaches 5%, it never decreases unless fed funds rise above the CPI. Because of the size of the asset bubble and the harm that would result, I honestly don't think we'll make it.

The abnormally flat and frequently inverted Treasury yield curve illustrates how uncommon the current market environment is. The short end of the curve will likely continue to expand above long-end rates as interest rates are projected to rise over 4% before the year is out.
