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Fed Rate Hike Watch

Fed implemented the first rate hike since 2018 yesterday on 16 March 2022. But it is not a surprise. This hike was priced in and markets already positioned themselves way in advance before this. What was of more interest was Fed's outlook going forward as that shapes how fast and how much they will hike.

Fed penciled in hikes for the remaining 6 meetings of the year. While that is definitely a more hawkish stance than what they previously adopted, it is again not that much of a surprise. The market already implied hikes for all FOMCs in 2022. The chart below shows you the Fed Rate hike expectations on the day before the meeting.

Fed Rate Expectations on 15 Mar 2022
Fed Rate Expectations on 15 Mar 2022

So is there any change to the rate expectations after the FOMC yesterday? Yes, it seems the market priced in a slightly faster rate hike than a day ago.

Based on the current data, the market seems to expect a 0.5% hike in one of the remaining FOMC. That brings the year-end expected Fed Funds rate slightly higher suggesting the possibility of an equivalent of eight 0.25% hikes.

But by and large, I would say Fed has not swayed too much from where the market is pointing at the moment. And that is a relief for markets that have taken a beating since the start of the year.

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