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US March Hike Expectations Take A Step Back

  • Latest Fedspeak has taken the edge off market pricing, with Fed Funds futures pulling back to seeing a 7.5% probability of a 50bp hike in March from above 20% earlier today.
  • There is currently just under 29bps priced for March and 120bps for 2022 (125bps earlier).
  • Bostic (non-voter, hawk) surprised by changing weekend comments that a 50bp hike or back-to-back hikes could be appropriate to saying 50bp is not his preferred policy action and that he sees three hikes through the year.
  • Daly (non-voter, dove) earlier said she’s not comfortable with high inflation and sees rate increases as early as March but they have to be gradual and not disruptive... with 4 hikes in 2022 "quite a bit of tightening" but still quite a bit of accommodation left in the system.
  • George (2022 voter, hawk) noted more forceful balance sheet shrinking could allow the Fed to hike less aggressively, which she said could help avoid financial imbalances.

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