if they go flat (no hike) today, they would try to call is a ‘pause’ but really it means the end of rate increases for this tightening cycle. They need to go 25 pts just to keep the momentum.
markets will go nuts if they come out at 0. It would indicate 1: we hit the top of rates and 2:banking crisis is worse than advertised. 3: FED strategy had to change due to unforeseen events, diminishing faith that fed knows what its doing.
Futures markets are projecting no change in rate at the 05/03 meeting, and less than 50% chance of a 25 bp decrease at the 06/14 meeting. However, the projection is all downward for the next year & a half.
After today’s increase of 25 bp to 5.00-5.25%, the markets are now about 50/50 on a decrease at the 06/14 mtg & nearly certain that it will happen by the 07/26 mtg. By the end of 2024 the markets think the overnight rate will be near 3%.
When I look at the crb futures, it’s possible (quite likely, even), though, unlikely, to see an increase at the 06/13-14 mtg, but one is fully priced in by nearly certain (well…maybe 50-50) at the 07/25-26 mtg.
