Rates as of 0500 GMT

Market Recap

The Fed raised rates by 75 bps, as expected. The reaction though was not as expected, at least not as expected by me. The dollar was the worstperforming currency of the day, which is perhaps understandable given that the move was widely discounted. But the plunge in bond yields globally and the rally in stocks was a bit surprising, no?

The most important point from Chair Powells press conference was that the Committee would likely decide between a 50 bps and 75 bps rate increase at the July FOMC meeting. The possibility of a 50 bps hike in July was well received by the market, which as I mentioned yesterday had already priced in a 75 bps hike for the month, with a small possibility of 100 bps.

Speaking of the 75 bps hike, he noted that I dont expect these moves to be common,  which would appear to rule out even larger hikes another positive for the markets although later in the press conference he didnt rule out larger hikes. And once the fed funds rate reached the Committees estimate of neutral, i.e. around 2.5, rate hikes would probably revert back to 25 bps at a time a cautious approach to hiking above neutral. The result from that would be a slower path of tightening than was previously expected.

So while the new rate path red line is substantially faster and higher than what people expected a week ago grey line, before the release of the disastrous May US CPI figure, its actually shallower than what people expected on…