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The Market is Now Forecasting More Than 3 Hikes in 2022

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25 comments on The Market is Now Forecasting More Than 3 Hikes in 2022

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CME Fedwatch Tool has rate hike odds for every FOMC meeting through the February 23, 2023 meeting. 

The above chart reflects CME data as of December 21 , 2021. 

See Addendum – That Chart and the one that follows seem to be inaccurate.

Rate Hike Details 

Over-Under Line

I added the last two columns to the CME data.

The over-under line for hikes is slightly more than three as betters see things. A sum of percentages shows a 53.7% chance of more than three hikes. 

Moreover, there is a non-miniscule 17.2% chance of 5 hikes and a 24% chance of 5 or more if you think the betting line is correct. 

I don’t, and if you don’t either, sophisticated investors might consider Eurodollar calls or futures (an interest rate bet not a currency bet). 

Note: I did not price options, I am just speaking my mind. I have not traded eurodollar futures or options for a long time. 

Addendum!

I captured those charts last night around Midnight. They look different this morning. 

This afternoon it appears the market is pricing in between two and three hikes, not more than three as I captured last evening. 

I do not know if there was this much of a change or I captured data at a bad time or the data was just not correct. 

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Mike Shedlock

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25 Comments
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Doug78
Doug78
4 years ago
Zeihan comes up with a very interesting analysis o China. 
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Mish
Mish
4 years ago
CME Snapshot the same this morning
Actually, it appears even worse. 
Yep – Shift to the Right
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Mish
Mish
4 years ago
Reply to  Mish
Nope I read that wrong will post a new chart
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Doug78
Doug78
4 years ago
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Maximus_Minimus
Maximus_Minimus
4 years ago
I rate it with the same veracity as a one year weather forecast.
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FromBrussels
FromBrussels
4 years ago
3 rate hikes , and 3 or 4 jabs ….ain t life just fn beautiful ?
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Doug78
Doug78
4 years ago
Reply to  FromBrussels
If a jab were like a poke then I wouldn’t mind at all but as long as I weren’t on the receiving end. 
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RonJ
RonJ
4 years ago
Zero Hedge had a story yesterday, about the IMF, World Bank, and 10 countries including the U.S., having held a simulation of a global financial system collapse.
There was apparently, a pandemic simulation just before the Covid-19 pandemic.
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Tony Bennett
Tony Bennett
4 years ago
Reply to  RonJ
Why on earth US involved?
Our esteemed Sec of Treasury in 2017:
LONDON (Reuters) – U.S. Federal Reserve Chair Janet Yellen said on Tuesday that she does not believe that there will be another financial crisis for at least as long as she lives, thanks largely to reforms of the banking system since the 2007-09 crash.
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Tony Bennett
Tony Bennett
4 years ago
Reply to  RonJ
In all seriousness, Buffet and Munger (both pushing on 90) are sitting on $150 billion in cash.
I know many might think time has passed them by, but they’ve been around the block a few times.  Always pay attention to what they do.
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KidHorn
KidHorn
4 years ago
Reply to  RonJ
The military has held nuclear war drills ever since the end of WWII.
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Tony Bennett
Tony Bennett
4 years ago
China will be wild card in 2022 for global economy.  Currently running a zero covid policy (shut everything down at first whiff).  Xi’an a city of 13 million on lockdown over fewer than 150 cases of covid.
Already dealing with real estate bubble.  On Deck is Winter Olympics … chance of influx of visitors not bringing covid??
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Mackkenzie
Mackkenzie
4 years ago
What is the CME track record on predicting rate changes? How does that compare to US bond yields or Euro Dollar futures as far as predicting rate changes? In short, which predictive models have the best track record?
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Mish
Mish
4 years ago
Reply to  Mackkenzie
I believe They say the same thing. If not there would be an arbitrage setup. 
No real predictive power that I can tell 
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Tengen
Tengen
4 years ago
IF we see any hikes, they will be quarter point baby steps and the Fed will be quick to slash back to zero at the first sign of trouble. Besides, the cost of servicing existing debt would be astronomical at anything close to normalized rates.
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LPCONGAS99
LPCONGAS99
4 years ago
I will believe it when I see it. And I know be careful what you wish for, but isn’t it about time we get closer to normalizing interest rates, stop punishing savers at the expense of free spenders? 
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KidHorn
KidHorn
4 years ago
Reply to  LPCONGAS99
Will never happen. Imagine the government paying 5% on $30t. $1.5t/yr. Total income tax collection is roughly $2t/yr. And the $30t would only get bigger every year.
Actually, the only way it would happen is if the FED bought another $10t in government debt and retired all their government debt. Money supply would explode and USD would become worth a lot less. Unless every other major CB did the same at the same time.
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TexasTim65
TexasTim65
4 years ago
Reply to  LPCONGAS99
In addition to what KidHorn wrote, it would also sink the housing market since most people buy a monthly mortgage payment.
For example if you can pay 1000 a month (12K a year) you can afford a 400K home at 2% (8K payment). If rates go to 4%, that same person can only afford a 200K home (8K payment). So even a small raise in rates would crush home values which a LOT of people are counting on for their retirement. That would in turn lead to political unrest (ie bad for the party in power).
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thimk
thimk
4 years ago
 the wildcard is social  justice warrior/climate activist  Brainard ,on deck 2021. The feds get political .  we ain’t out the weeds yet
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Tony Bennett
Tony Bennett
4 years ago
3?  Really?
Well, they have to finish taper first … they MAY accomplish that … but then Powell will want a period of time to gauge market, er, economy before proceeding with any hikes. 
Put me down for things going off the rails during interim … if not before.
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TechLover1
TechLover1
4 years ago
Mish,
You might have taken a snapshot at a volatile time. Currently, the probability on CME sits squarely at three or below and that holds for Feb 22 as well.
The historical probabilities on CME website currently are way off your table as well. Can you double check your snapshot numbers?
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Mish
Mish
4 years ago
Reply to  TechLover1
Yes, you were correct
Addendum added
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KidHorn
KidHorn
4 years ago
I think it’s more likely we’ll have one hike than three.
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Eddie_T
Eddie_T
4 years ago
Reply to  KidHorn
If they get that far.
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