With more and more members of the FOMC talking about the need to taper or when they expect rate hikes to occur, it’s worth looking at the baseline assumptions around the pace of hikes that markets currently price. The spreads between different Eurodollar future maturities allow us to show how much markets think rates will change over a given period.
As shown below, current pricing is for less than 1 hike in 2022. Pricing is more aggressive in 2023 with two hikes while years further out are around 1 hike each, with slightly more aggressive pricing in 2024 than 2025. Of course, market pricing is often wrong – in both directions. This is just what’s currently priced, and the numbers aren’t that dramatic: a total of just more than 5 hikes over 4 years. Click here to view Bespoke’s premium membership options.
Chart sources: Bloomberg