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Fed Terminal Rate Still Seen Higher Than Pre-Payrolls

STIR FUTURES
  • Fed Funds implied hikes cool again having partially retraced yesterday’s post-CPI slashing lower, leaving a 61bp hike priced for the Sept FOMC before a cumulative 116bps to year-end (3.49%) and 124bps to a Mar’23 peak (3.58%).
  • The implied peak is down from just under 3.7% prior to CPI but still notably above the 3.45% pre-payrolls.
  • The 50bps of cuts priced to 3.07% by Dec’23 continues to be much lower than FOMC member views. Evans (’23) and Kashkari (’23) yesterday stuck to Evans wanting 3.25%-3.5% by year-end, 3.75-4% end-23 and Kashkari 3.9% year-end, 4.4% end-23.
  • This morning, Daly (’24) said it’s too early to declare victory on inflation but also stuck to a 50bp hike in Sept as her baseline – not ruling out 75bps but with increased support for a slowdown in the pace – and still wants rates of just under 3.5% by year-end. A re-appearance from Daly is the only scheduled Fedspeak at 1930ET on BBG TV.

FOMC-dated Fed Funds futures implied rate at specific meetingsSource: Bloomberg

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  • Fed Funds implied hikes cool again having partially retraced yesterday’s post-CPI slashing lower, leaving a 61bp hike priced for the Sept FOMC before a cumulative 116bps to year-end (3.49%) and 124bps to a Mar’23 peak (3.58%).
  • The implied peak is down from just under 3.7% prior to CPI but still notably above the 3.45% pre-payrolls.
  • The 50bps of cuts priced to 3.07% by Dec’23 continues to be much lower than FOMC member views. Evans (’23) and Kashkari (’23) yesterday stuck to Evans wanting 3.25%-3.5% by year-end, 3.75-4% end-23 and Kashkari 3.9% year-end, 4.4% end-23.
  • This morning, Daly (’24) said it’s too early to declare victory on inflation but also stuck to a 50bp hike in Sept as her baseline – not ruling out 75bps but with increased support for a slowdown in the pace – and still wants rates of just under 3.5% by year-end. A re-appearance from Daly is the only scheduled Fedspeak at 1930ET on BBG TV.

FOMC-dated Fed Funds futures implied rate at specific meetingsSource: Bloomberg