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Fed Terminal Rate Not Far Off Pre-CPI Peaks

STIR FUTURES
  • Fed Funds implied hikes show 62bps for Sept, the middle of the narrow post-CPI range.
  • There’s been a stronger relative rise further out though, with the 117bps to 3.50% in Dec and especially the 128bps to a peak of 3.61% in Mar’23 taking it back towards post-payrolls levels at a sustained peak of circa 3.65% in the run up to CPI.
  • In an interview late yesterday, Daly (’24 voter) expanded on guidance of a 50bp hike for Sept and a 3.4% by year-end, where she’s been since the last meeting. She doesn’t want to tip labor market over so 50bps makes sense, but open to 75bp should data evolve differently. Fed is data not data point dependent - CPI shows enough uncertainty, looks a little bit of improvement but we don’t want to be head faked.
  • Barkin (’23) speaks on CNBC at 1000ET.

FOMC-dated Fed Funds futures implied rateSource: Bloomberg

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  • Fed Funds implied hikes show 62bps for Sept, the middle of the narrow post-CPI range.
  • There’s been a stronger relative rise further out though, with the 117bps to 3.50% in Dec and especially the 128bps to a peak of 3.61% in Mar’23 taking it back towards post-payrolls levels at a sustained peak of circa 3.65% in the run up to CPI.
  • In an interview late yesterday, Daly (’24 voter) expanded on guidance of a 50bp hike for Sept and a 3.4% by year-end, where she’s been since the last meeting. She doesn’t want to tip labor market over so 50bps makes sense, but open to 75bp should data evolve differently. Fed is data not data point dependent - CPI shows enough uncertainty, looks a little bit of improvement but we don’t want to be head faked.
  • Barkin (’23) speaks on CNBC at 1000ET.

FOMC-dated Fed Funds futures implied rateSource: Bloomberg