Live Data Coverage: January Federal Reserve Meeting, Rate Decision

January FOMC Preview:

• The Fed hike cycle appears to be aggressive per market pricing, with the first 25-bps rate hike set to arrive in March – just as QE ends.

• The press conference will generate most of the action today, insofar as no new Summary of Economic Projections (SEP) will be released until March.

• Well discuss how markets may react to the January Federal Reserve rate decision starting at 13:45 EST/18:45 GMT. You can join live by watching the stream at the top of this note.

Market Still Expecting a Hawkish Fed

There are 153.5-bps of rate hikes discounted through the end of 2023 while the 2s5s10s butterfly is just off of its widest spread since the Fed taper talk began in June. Ahead of the January Fed meeting, rates markets are pricing in a 100% chance of six 25-bps rate hikes and a 13% chance of seven 25-bps rate hikes through the end of next year. Furthermore, expectations for a 50-bps rate hike to start the hike cycle have edged higher in recent weeks.

Taper and Rate Hike Timeline

Fed fund futures have continued to become more aggressive over the course of the month. At the end of December, Fed funds futures were pricing in March 2022 for the first 25-bps rate hike with a 63% chance. Now, one day ahead of the January Fed meeting, traders see a 100% chance of a 25-bps rate hike in March, with a 5% chance of a 50-bps rate hike. May will likely bring the second rate hike, with a 56% implied probability of transpiring.

• January 2022 = $60B in asset purchases

• February 2022 = $30B in asset purchases

• March 2022 = $0B in asset purchases; first 25-bps rate hike (105% chance per Fed funds futures)

• May 2022 = second 25-bps rate hike (56% chance)

• July 2022 = third 25-bps rate hike (59% chance)

• December 2022 = fourth 25-bps rate hike (85% chance)

Well discuss how markets may react to the January Federal Reserve rate decision starting at 13:45 EST/18:45 GMT.