Swaps linked to Federal Reserve policy announcement dates now suggest that around 75 basis points of further rate increases will take place over the coming two meetings, which suggests that at least one move from the central bank will be bigger than the standard size of 25 basis points.
The contract for June suggests an effective fed funds rate of 1.08%, 75 basis points above where the effective rate is likely to be on Thursday after the just-announced 25 basis point increase is factored in. The Fed tends to move in increments of 25-basis-points, which means a 50 basis-point move is being priced wither for May, the next meeting, or June, the one after that.
The prospect that such a supersized increase will take place at the May meeting is around four in five, based on market pricing.
Leave a Reply