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STIR: Fed Rate Path Consolidates Monday’s Pullback Off Cycle Highs

STIR
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  • Fed Funds implied rates consolidate yesterday’s Bessent- and WTI slide-induced flattening.
  • Cumulative cuts from 4.58% effective: 14bp Dec, 20bp Jan, 33bp Mar and 52bp June.
  • Looking further out to Dec’25, the implied 73.5bp of cuts to an effective 3.84% is still elevated compared to prior FOMC forecasts from September at least, with technically only one dot higher for 2024. There was 1 at 4-4.25% and 1 at 3.75-4% (with the latter equivalent to an effective 3.83% at current spreads above the lower target range, i.e. very close to current pricing), whilst all others were at 3.5-3.75% and below.  
  • Minneapolis Fed’s Kashkari (non-voter) late yesterday on BBG TV in response to a question about whether policymakers should reduce borrowing costs by 25bps at their last meeting of the year: “Right now, knowing what I know today, still considering a 25-basis-point cut in December - it’s a reasonable debate for us to have.” He added that the policy rate may be higher with policy not as restrictive and that productivity is a big question mark for the neutral rate.
  • The FOMC minutes headline Fed commentary today with no other scheduled speakers. See the MNI FOMC Minutes preview here.  
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  • Fed Funds implied rates consolidate yesterday’s Bessent- and WTI slide-induced flattening.
  • Cumulative cuts from 4.58% effective: 14bp Dec, 20bp Jan, 33bp Mar and 52bp June.
  • Looking further out to Dec’25, the implied 73.5bp of cuts to an effective 3.84% is still elevated compared to prior FOMC forecasts from September at least, with technically only one dot higher for 2024. There was 1 at 4-4.25% and 1 at 3.75-4% (with the latter equivalent to an effective 3.83% at current spreads above the lower target range, i.e. very close to current pricing), whilst all others were at 3.5-3.75% and below.  
  • Minneapolis Fed’s Kashkari (non-voter) late yesterday on BBG TV in response to a question about whether policymakers should reduce borrowing costs by 25bps at their last meeting of the year: “Right now, knowing what I know today, still considering a 25-basis-point cut in December - it’s a reasonable debate for us to have.” He added that the policy rate may be higher with policy not as restrictive and that productivity is a big question mark for the neutral rate.
  • The FOMC minutes headline Fed commentary today with no other scheduled speakers. See the MNI FOMC Minutes preview here.