Over the course of the past 24hrs, odds have dramatically increased that the Fed will hike by +25bps at 2pm today. 2y UST yields two weeks ago were 5.2%. Those quickly fell to 3.8% when Silicon Valley Bank imploded but 2y UST yields have been on the rise the past few days (now 4.2%). The odds as presently quoted and implied by the bond market, FanDuel, and DraftKings now reflect a 90% implied probability that the Fed hikes +25bps today.
If the Fed paused and did nothing, it’s implied the banking situation is worse than feared. If they did a +50bps hike it would be viewed as too much. The market would have an allergic reaction to either of those outcomes. At 2pm today the Fed will do +25bps hike and if Powell has any sense, he’ll sound dovish and recognize that the 16th largest bank in the USA went down on his watch within a day. He better throw a strike at the press conference and sound less tough. His margin of error here is razor thin. I think this could be the end of the hiking cycle.
2pm ET today – enjoy the show.
Source: JonesTrading as of March 22, 2023
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