Fed: Market prices a 25bp rate hike - SocGen

Today sees the start of a 2-day FOMC meeting which will deliver its verdict after the US has released CPI and retail sales figures tomorrow explains Kit Juckes, Research Analyst at Societe Generale.

Key Quotes

“The Fed Funds futures market prices a 25bp rate hike with a strong degree of confidence, but it’s a lot less sure about what happens after that. Another 18bp hike is priced in for the end of the year, then 26bp for 2018 as a whole and 18bp in 2019. The pricing of end-2019 rates has come down by 25bp since the start of the year, even as pricing for 2017 has risen.”

“The Fed’s insouciance about market pricing for the peak of the rate cycle, along with the fall in wage growth and inflation since the start of the year, is behind both the dollar’s relative softness, and markets’ overall buoyancy. A ‘dovish hike’ would sustain both these trends, while anything that moves the end-2019 rate expectation upwards is likely to help the dollar and sound (minor) alarms for EMFX investors.”