| Author | Message | ||
     Entrepreneur Kurra Bewarse Username: Entrepreneur Post Number: 3932 Registered: 05-2011 Posted From: 24.164.46.35 Rating: N/A |
Rate-hike expectations ratcheting up There was a time last year when it was thought the target range for the fed funds rate might not be raised at all in 2022 or perhaps just one time by the end of the year. Those expectations have been wiped out with the persistent inflation pressures and the Fed's own acknowledgment that it will likely need to do more in 2022 to remove some of its policy accommodation to tamp down the inflation pressures. The Summary of Economic Projections from the December FOMC meeting showed a median estimate of three rate hikes in 2022, but that was still seen by some as a close call between two and three rate hikes in 2022. It isn't any longer. According to the CME's FedWatch Tool, the fed funds futures market is now pricing in the probability of four rate hikes in 2022. There has even been some market chatter of late that the Fed could raise the target range for the fed funds rate by 50 basis points at its March meeting to regain some inflation-fighting credibility. That isn't a consensus view, but it is now widely believed that the first rate hike will happen at the March 15-16 FOMC meeting. Per the CME FedWatch Tool: There is a 100% probability of a rate hike of at least 25 basis points in March to 0.25-0.50%. There is a 93.4% probability of a rate hike to 0.50-0.75% in June. There is an 80.2% probability of a rate hike to 0.75-1.00% in September. There is a 74.9% probability of a rate hike to 1.00-1.25% in December. The 2-yr note yield, which has risen 31 basis points already this year to 1.04%, is reflecting the shift in rate-hike expectations. That shift has happened rapidly. A month ago, there was less than a 50% probability placed on a rate hike in March and only a 59.7% probability that there would be a third rate hike in December 2022. With CPI running at 7.0% yr/yr (highest since 1982), oil prices topping $85/bbl, and companies starting to discuss compensation expenses as a crimp on profit growth, it is no wonder that rate-hike expectations are ratcheting up. |