Rates markets are fully pricing in a 75-bps rate hike by the Federal Reserve today, with an outside shot at a 100-bps rate hike. Rate hike expectations have cooled dramatically in recent weeks
today, with an outside shot at a 100-bps rate hikecooled dramatically in recent weeks as a dour stretch of US economic data has traders believing that the end of the rate hike cycle is nearing.Federal Reserve rate decision starting at 13:45 EDT/17:45 GMT on Wednesday,75-bps Hike Incomingmeetings strongly suggests that a 75-bps rate hike is coming. Some FOMC members even hinted that a 100-bps rate hike would be possible.
US inflation rates have pushed higher, though some gauges, particularly the PCE price index – the Fed’s preferred gauge of inflation – have started to ease, leading markets to price in ‘peak’ Fed rate hike odds. While the Fed will continue to raise rates in 2022, 2023 will likely bring forth rate cuts – at least according to markets.
Eurodollar Futures Contract Spread [BLUE], US 2s5s10s Butterfly [ORANGE], DXY Index [RED]: Daily Timeframe After the Fed raises rates by 75-bps this week, there is only one 25-bps rate hike discounted through the end of 2022, per Eurodollar spreads. Coupled with movement in the 2s5s10s butterfly, the market’s interpretation of the near-term path of Fed rate hikes has become decidedly less hawkish. As markets are ever-forward looking, this week’s rate hike from the Fed may not be a bullish catalyst for theFed funds futures tell a different story, however.
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