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STIR: Fed Rates Extend Hawkish Reaction To U.Mich, 65bp Cuts For 2025

STIR
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  • Fed Funds implied rates have continued to push higher for their most hawkish levels since Mar 3.
  • There has been little to halt the reaction seen on the U.Mich consumer survey which showed another surge in inflation expectations with the 1Y at 4.9% and the 5-10Y at 3.9% for a multi-decade high.
  • The survey does clearly have partisan issues but long-term expectations of independent rather than Democrat or Republican respondents also saw a marked increase to 3.7%.
  • Further, it has a long history and still carries weight with FOMC members such as Governor Kugler in a speech last week as part of some “important upside risks to inflation”.
  • Cumulative cuts from 4.33% effective: 0.5bp Mar, 7.5bp May, 23.5bp Jun, 32.5bp Jul and 65bp Dec.
  • The 65 of cuts for 2025 compares with 71bp before Wednesday’s CPI and 76bp before Friday’s payrolls report.
  • Over the week, the Sep’25 SOFR contract has seen the biggest increase in implied yields (+5bps) whilst negative growth concerns still hold with the Dec’27 holding 5bps lower. 
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  • Fed Funds implied rates have continued to push higher for their most hawkish levels since Mar 3.
  • There has been little to halt the reaction seen on the U.Mich consumer survey which showed another surge in inflation expectations with the 1Y at 4.9% and the 5-10Y at 3.9% for a multi-decade high.
  • The survey does clearly have partisan issues but long-term expectations of independent rather than Democrat or Republican respondents also saw a marked increase to 3.7%.
  • Further, it has a long history and still carries weight with FOMC members such as Governor Kugler in a speech last week as part of some “important upside risks to inflation”.
  • Cumulative cuts from 4.33% effective: 0.5bp Mar, 7.5bp May, 23.5bp Jun, 32.5bp Jul and 65bp Dec.
  • The 65 of cuts for 2025 compares with 71bp before Wednesday’s CPI and 76bp before Friday’s payrolls report.
  • Over the week, the Sep’25 SOFR contract has seen the biggest increase in implied yields (+5bps) whilst negative growth concerns still hold with the Dec’27 holding 5bps lower. 
image