RECAP
In the last report (US 10Yr @ 3.05% on 26-Aug-22) we had said the Peak FFR (Fed Fund Rate) might be limited to 3.75-3.80%, the US 10Yr might remain below 3.60% and saw resistance at 3.50% on the US 2Yr. We had wondered if the FED could turn dovish if it was seen that the CPI has already peaked at 9%. Except for the CPI, our expectations on the FFR and the US 10Yr could turn out to be wrong. Since our last report, Powell’s hawkish stance at the Jackson Hole meeting on 27-Aug has sent yields up sharply, especially the US 2Yr which has risen well past 3.50%. The market has ignored the fact Aug-22 CPI release on 13-Sep was 8.25%, coming down from 9.00% in June and 8.48% in July.
The market now fully expects a 75bp hike in the FFR in today’s FOMC meeting, with a decent part of the market looking for 100bp. The terminal FFR is now projected at 4.00% at least, with allowance for 4.25%.
EXECUTIVE SUMMARY
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In the last report (US 10Yr @ 3.05% on 26-Aug-22) we had said the Peak FFR (Fed Fund Rate) might be limited to 3.75-3.80%, the US 10Yr might remain below 3.60% and saw resistance at 3.50% on the US 2Yr. We had wondered if the FED could turn dovish if it was seen that the CPI has already peaked at 9%. Except for the CPI, our expectations on the FFR and the US 10Yr could turn out to be wrong. Since our last report, Powell’s hawkish stance at the Jackson Hole meeting on 27-Aug has sent yields up sharply, especially the US 2Yr which has risen well past 3.50%. The market has ignored the fact Aug-22 CPI release on 13-Sep was 8.25%, coming down from 9.00% in June and 8.48% in July.
The market now fully expects a 75bp hike in the FFR in today’s FOMC meeting, with a decent part of the market looking for 100bp. The terminal FFR is now projected at 4.00% at least, with allowance for 4.25%.
EXECUTIVE SUMMARY
- An end-2022 FFR of 4% is now fully expected
- Market expectation is for a 75bp hike today, but a 100bp would allow the Fed to be data dependent later
- Preventing an acceleration in the US Wage Growth is what could prompt the Fed to raise by upto 100bp
- At the same time, there is evidence to suggest the Fed might slow down its rate hikes in November
- Watch Resistance at 3.60-3.80% on the US 10Yr
- Dow Jones and Euro could be vulnerable to further downside
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