Live Data Coverage: November Federal Reserve Meeting
November FOMC Preview:
- Rates markets are fully pricing in a 75-bps rate hike by the Federal Reserve today, with a small chance of a 100-bps rate hike.
- Longer-term Fed rate expectations have stabilized with the main rate expected to move to 5.00% by May 2023.
- We’ll discuss how markets may react to the November Federal Reserve rate decision starting today at 13:45 EDT/17:45 GMT. You can join live by watching the stream at the top of this note.
While the Fed is committed to do ‘whatever it takes’ to bring down inflation, it should be noted that the tone deployed by a few FOMC members began to soften just ahead of the blackout window – leading to rampant speculation of when a ‘pivot’ may arrive. Nevertheless, the hotter than expected September US inflation report (CPI) and the strong September US nonfarm payrolls report suggest that aggressive policy tightening efforts will continue in 2022.
Eurodollar Futures Contract Spread (October 2022-January 2023) [BLUE], US 2s5s10s Butterfly [ORANGE], DXY Index [RED]: Daily Timeframe (August to November 2022) (Chart 1)
Over the past three months, there has been a tight relationship among the DXY Index, the shape of the US Treasury yield curve, and Fed rate hike odds. Despite easing back at the end of last week, Eurodollar spreads and Fed funds futures are still pricing a full 75-bps rate hike for the next Fed meeting in November. However, questions remain about whether or not a 50-bps or a 75-bps rate hike will be levied in December.
If the destination matters more than the journey, the Fed may signal that it intends on begin slowing the pace of rate hikes moving forward but will ultimately end at a higher terminal rate than previously discussed (September FOMC outlined a 4.6% terminal rate at the end of 2023).
Rate Hike Timeline
Fed fund futures remain equally aggressive as Eurodollar contract spreads in the near-term. Rates markets see a 103% chance of a 75-bps rate hike in November (a 100% chance of a 75-bps rate hike and a 3% chance of a 100-bps rate hike), with a 50-bps rate hikes favored in December (a 100% chance of a 50-bps rate hike and a 47% chance of a 75-bps rate hike). Ahead of the November Fed meeting, the Fed’s main rate is expected to rise to a peak of 5.038% by May 2023.
- November 2022 = 75-bps rate hike (103% chance) [main rate at 4.00%]
- December 2022 = 50-bps rate hike (100% chance; 47% chance of 75-bps) [main rate at 4.50%]
- February 2022 = 25-bps rate hike (100% chance) [main rate at 4.75%]
- March 2022 = 25-bps rate hike (62% chance) [main rate at 5.00%]
We’ll discuss how markets may react to the November Federal Reserve rate decision starting at 13:45 EDT/17:45 GMT. You can join live by watching the stream at the top of this note.
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--- Written by Christopher Vecchio, CFA, Senior Strategist
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.