Fed Tightening Premium On The Up Again

Note that the OIS strip currently prices a Fed Funds Rate of ~2.77% come the end of the Fed’s Dec ’22 meeting, per BBG WIRP. This is up from the ~2.65% seen at the close on Friday. Meanwhile, the Eurodollar strip runs 0.5-11.0bp cheaper through the reds, with the reds underperforming on the curve. This could add some credence to the idea that Fed Governor Waller’s hawkish commentary has provided a least some of the weight to Tsys & Eurodollars. A quick reminder that Atlanta Fed President Bostic (’24 voter) alluded to the potential for a pause in the Fed tightening cycle in September early last week, while some also suggested that a phrase in the minutes of the May FOMC meeting opened the potential for such a pause around year-end. While Waller’s comments didn’t contain much in the way of new information per se (his hawkish views are well documented), the recent Bostic/May FOMC minute conditioning may be exacerbating the market reaction. Some of the move we have seen may also be linked to setup ahead of the previously outlined Powell-Biden meeting (we have also fleshed out Biden’s inflation “plan” in an earlier bullet).