Ben chabot(@chabot_ben):Update on rate expectations... The FF futures probability of a rate hike this week is now at 93%. That is up from 59% a week ago. Not only have the odds of a September hike increased, but the expectations for the total number of hikes shifted as well. Both the FF futures and the SOFR options now imply the Fed will hike between 75-100 bps and the cycle will stop by June 27. This is a change from market prices in the hour after the CPi report (see below). Right after the report the timing of hikes moved forward but the terminal level of the hiking cycle was largely unchanged. That has changed as investors digested the report and we received negative oil news over the weekend. The odds of 2 or fewer hikes has now declined over 30% since a week ago and the right tail (5 or more hikes) has added probability. Interestingly, the difference between SOFR options implied June27 rate and the FF implied rate is now much more aligned suggesting there's been an expectations shift rather than an increase in risk premium.

2026.09.14 18:43

Update on rate expectations... The FF futures probability of a rate hike this week is now at 93%. That is up from 59% a week ago. Not only have the odds of a September hike increased, but the expectations for the total number of hikes shifted as well. Both the FF futures and the SOFR options now imply the Fed will hike between 75-100 bps and the cycle will stop by June 27. This is a change from market prices in the hour after the CPi report (see below). Right after the report the timing of hikes moved forward but the terminal level of the hiking cycle was largely unchanged. That has changed as investors digested the report and we received negative oil news over the weekend. The odds of 2 or fewer hikes has now declined over 30% since a week ago and the right tail (5 or more hikes) has added probability. Interestingly, the difference between SOFR options implied June27 rate and the FF implied rate is now much more aligned suggesting there's been an expectations shift rather than an increase in risk premium.

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Ben chabot@chabot_ben

2026.09.11 14:46

The CPI came in hot enough to move Fed Fund Future implied odds of a September hike to 85%. However, the inflation reading was cool enough that the market expectations for the end of the tightening cycle didn't move much. The FF future implied odds for year-end remained centered around 2 hikes and the odds of more than two hikes by year end increased by only 2% while the odds of 1 or fewer hikes declined by just under 5%. Future prices still see 3 hikes by mid-2027 as the likely stopping point and today's CPI report actually lowered uncertainty about that estimate. The FOMC rarely surprises the market at a regular scheduled meeting. If they were to leave rates unchanged next week this would be the biggest "surprise" at a schedule meeting since 1994 when the Fed held rates fixed despite the market pricing in a rate hike.

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