After its June meeting, the Federal Reserve will have increased policy rates by 1.75 per cent during the tightening cycle, about two-thirds of the distance needed to reach its estimate of equilibrium short rates, or r*. So is it possible that the tightening cycle is already nearing an end?

In last week’s FOMC minutes, the committee had an initial discussion on whether it should change its forward guidance on rates, perhaps by giving an early indication that the degree of accommodation is shrinking. It decided against any such change in guidance at this stage. Nevertheless, the market took the discussion to imply that the Fed will tolerate a modest inflation overshoot, and concluded that rates might conceivably begin to plateau in the foreseeable future. US bonds enjoyed their best week of the year.

So, when and where will US short rates hit their high points?