(Adds analyst comments, updates federal funds pricing)
By Gertrude Chavez-Dreyfuss
NEW YORK, June 16 (Reuters) – Federal funds rate futures, which track short-term interest rate expectations, on Wednesday bet that the US Federal Reserve would tighten monetary policy in early 2023 after the Fed projections have shown at least two rate hikes this year.
The fed funds market was showing a roughly 90% chance of a rate hike by January 2023. Prior to the Fed’s statement, the market had fully integrated a rate hike by April 2023.
New projections saw 11 Fed officials, a majority, forecast at least two quarter-point interest rate hikes for 2023, even as officials in their statement pledged to maintain a supportive policy. for the time being in order to encourage a continued upturn in employment.
“It’s enough of a hawkish surprise for the bond market and it’s getting all the attention,” said Frances Donald, chief global economist, Manulife Investment Management, in Toronto, reacting to the Fed’s rate projections, or the so-called “dot plot.”
“There has been no significant change in tone. This statement only has a few adjustments. The market is reacting to a few bits of information in the dot plot,” Donald said.
In his post-meeting press conference, Fed Chairman Jerome Powell said the Fed’s projections do not represent a committee decision or plan.
For some background, on the dot plot, Lou Brien, DRW Trading market strategist, said Powell was not a fan of points as a rate forecast, but said “they are useful. to signal the sentiment of the Fed “.
Brien noted, for example, that the December 2018 dot plot showed an expected U.S. rate of nearly 3% by the end of 2019 during the Fed’s hike cycle. But the rates never increased and stood at 1.75% at the end of 2019.
(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Sinead Carew; Editing by Chizu Nomiyama and Nick Zieminski)