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Fed funds futures price in hike by May 2022 after Fed statement -Breaking

by Mike Robinson

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By Gertrude Chavez-Dreyfuss

NEW YORK, (Reuters) – Futures for the Federal Funds Rate on Wednesday priced in a quarter point tightening by Federal Reserve by May Next Year after the U.S. central banks doubled the pace at tapering per month. They also flagged three rate hikes in 2022.

Fed tightening has been fully anticipated by the fed funds market. Traders project a 50% likelihood of Fed tightening in May.

Fed funds futures bet on three Fed-approved hikes in 2022.

The Fed, signaling its inflation target has been met, said on Wednesday it would end its pandemic-era bond purchases in March and pave the way for three quarter-percentage-point interest rate increases by the end of 2022 and another three in 2023 as it battles persistently high inflation.

According to the more liquid eurodollar futures markets, the Fed could raise its rates in May or June with three additional hikes.

Market expectations are largely met by it. According to Gregory Daco (chief U.S. economist at Oxford Economics in New York), markets are sometimes a bit more cautious than this.

But, it is a balanced outlook and I do not believe it should cause a drastic tightening in financial conditions.

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