Rate hike odds and inflation expectations update

With respect to future fed policy, here is an update in the fed funds futures for what is priced in for rate hikes in 2010. Odds of a 25 bps hike by the April meeting is now down to 28% vs 54% priced in just prior to yesterday’s FOMC statement release. Last Monday, the market had priced in a 90% chance of a hike by April. For the following June meeting, odds are down to 82% of a 25 bps hike to .5% down from 100% priced in midday yesterday and from a 64% chance of a total of 50 bps in hikes by June priced in last Monday. It is not until the August meeting now that the fed funds futures are fully pricing in a 25 bps hike. Inflation expectations in the 10 yr TIPS is up another 2 bps today to 2.14% and also is higher by 2 bps in the 5 yr to 1.79%.

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