The magnitude of expected interest rate hikes by the Fed is accelerating.

Rate hike odds from CME Fedwatch

According to CME Fedwatch the odds of sharper increases in Fed rate hikes has dramatically accelerated in the last month. The above chart is for the November 2 meeting.

CME Fedwatch target rate Dec 2022

CME Fedwatch target rate Feb 2023 on 2022-10-06

CME Fedwatch target rate Dec 2023 

Change from month ago 

  • Nov 2022: Month Ago 3.50%-3.75%, Now 3.75%-4.00%.
  • Dec 2022: Month Ago 3.75%-4.00%, Now 4.25%-4.50%.
  • Feb 2023: Month Ago 3.75%-4.00%, Now 4.50%-4.75%.
  • Dec 2023: Month Ago 3.50%-3.75%, Now 4.25%-4.50%.

Change synopsis 

  • The terminal rate is now 4.50%-4.75% up three-quarters of a point from a month ago. 
  • The market expects the Fed to sit 4.50%-4.75% from February until September of 2023.
  • The market does not expect the first rate cut in 2023 until September. 
  • Then the market expects the Fed to sit on 4.25%-4.50% through the end of the year. 

That's quite a bit of expected additional tightening. 

I highly doubt these aggressive hikes will happen, or if they do the Fed can sit on them for a full year.

Interest rate changes and quantitative tightening (QT) operate with an economic lag of six months to a year. 

Housing is already broken, yet the market expects the Fed to tighten from the current 3.00%-3.25% to 4.50%-4.75% by February, then hold that for seven months. 

Wow.

Job openings decline by over a million, but what does it mean?

In case you missed it, please see Job Openings Decline by Over a Million, But What Does It Mean?

If the Fed really gets to 4.50%-4.75% by February, then holds that for seven months, I may need to re-think my unemployment rate synopsis. 

I am certain that 4.75% is more than a bit overshooting.

This material is based upon information that Sitka Pacific Capital Management considers reliable and endeavors to keep current, Sitka Pacific Capital Management does not assure that this material is accurate, current or complete, and it should not be relied upon as such.

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