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Only Modest Trimming In Terminal Rate Expectations

STIR FUTURES
  • The minutes came as a dovish cue rather than being massaged in a hawkish direction, led by headlines that whilst some officials still see the Fed Funds rate below neutral, officials saw a slower pace of rate hikes at some point with many officials seeing risk that the Fed could tighten more than necessary.
  • FI gains are limited though considering the range of Fedspeak since the meeting pushing back against it being seen as a dovish pivot.
  • Fed Funds implied hikes dip slightly to 63bp for the Sept FOMC with only small declines of circa 3-4bps across meetings further out, including the terminal rate trimmed to 3.70% at the Mar’23 meeting. That’s still at levels touched prior to last week’s CPI miss whilst prior Fed commentary of higher for longer keeps rates seen for mid-2023 meetings up to 50bps higher than after the Jul FOMC.
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