News: Eurodollar, Fed funds futures pare back U.S. tightening bets.
NEW YORK (Reuters) – Eurodollar and Fed fund markets tracking near-term interest rate expectations on Wednesday reduced bets on the timeframe of a possible Fed tightening after dampening expectations of an early move.
Trading was choppy following the Fed’s statement and Fed chairman Jerome Powell’s press conference, with futures prices changing frequently and hence rate hike bets postponed.
In the more liquid Eurodollar futures market, traders have priced in a 90% chance of the Fed hike through March 2023, according to the Fed statement, which backed off December 2022.
Traders took into account two additional rate hikes in 2023, but implied returns have declined slightly, suggesting less firm belief compared to what it was before the Fed meeting.
The lower volume Fed funds market showed a roughly 80% chance of a rate hike through February 2023, compared to expectations for a tightening through December 2022 before the Fed’s comments.
In a statement after the Fed kept interest rates stable, the US Federal Reserve said it expected economic growth and inflation to spike rapidly this year as the COVID-19 crisis eases and promised to keep its target rate close for years Keep Zero Come on.
Powell also said it was too early to discuss reducing asset purchases, stressing his commitment to wait for “substantial further progress” in meeting the Fed’s goals.
“Overall, the message that the Fed hit today was cautious and the central bank has resisted market prices,” said Simon Harvey, senior FX market analyst at Monex Europe in London.
“With very little quantification of the parameters of the new inflationary framework, markets will absorb all the information they can get even if the forward-looking measures are not representative of the Fed’s response function behind the curve.”
Reporting by Gertrude Chavez-Dreyfuss; Adaptation by Jonathan Oatis
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