According to CME Fedwatch the odds of sharper increases in Fed rate hikes has dramatically accelerated in the last month. The above chart is for the November 2 meeting.
CME Fedwatch Target Rate Dec 2022
CME Fedwatch Target Rate Feb 2023 on 2022-10-06
CME Fedwatch Target Rate Dec 2023
Change From Month Ago
- Nov 2022: Month Ago 3.50%-3.75%, Now 3.75%-4.00%
- Dec 2022: Month Ago 3.75%-4.00%, Now 4.25%-4.50%
- Feb 2023: Month Ago 3.75%-4.00%, Now 4.50%-4.75%
- Dec 2023: Month Ago 3.50%-3.75%, Now 4.25%-4.50%
- The terminal rate is now 4.50%-4.75% up three-quarters of a point from a month ago.
- The market expects the Fed to sit 4.50%-4.75% from February until September of 2023.
- The market does not expect the first rate cut in 2023 until September.
- Then the market expects the Fed to sit on 4.25%-4.50% through the end of the year.
That's quite a bit of expected additional tightening.
I highly doubt these aggressive hikes will happen, or if they do the Fed can sit on them for a full year.
Interest rate changes and quantitative tightening (QT) operate with an economic lag of six months to a year.
Housing is already broken, yet the market expects the Fed to tighten from the current 3.00%-3.25% to 4.50%-4.75% by February, then hold that for seven months.
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If the Fed really gets to 4.50%-4.75% by February, then holds that for seven months, I may need to re-think my unemployment rate synopsis.
I am certain that 4.75% is more than a bit overshooting.
This post originated at MishTalk.Com
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