With the FOMC last Wednesday reiterating the continuation of their extraordinary accommodation, followed by the G20 over the weekend saying fiscal policy will also stay the same having lit fire again to the anti US$/reflation trade today, the fed funds futures can help us quantify the markets belief of what is “exceptionally low” and how long is an “extended period” with respect to fed policy. Odds of a 25 bps hike by April are now down to 20% from 90% two weeks ago. The odds of a hike by June are now at 66% vs 100% one week ago. It is not until the Aug meeting has the market fully priced in a 25 bps hike. It is not until the Jan 2011 meeting where the fed funds rate is expected to be at 1%, the level that Greenspan stopped at which helped to ignite the credit bubble. Looking past mid year ’10, the FF futures don’t trade as much but we can still get an idea of its expectations.
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