Chicago Fed President Charles Evans pointed out that inflationary pressures are lasting longer than expected, while New York Fed President John Williams and Fed President Loretta Mester warned about the bond market.
Chicago Fed President Charles Evans, one of the dove members of the Fed, said that the inflationary pressures on prices lasted longer than expected. Evans said they expect these pressures to continue until the middle of next year and that they are examining the situation. It wouldn’t be surprising if the US unemployment rate fell to 4.5 percent by the end of this year, Evans said.
Cleveland Fed President Loretta Mester said the US government bond market is critical to the global financial market, so improving structural resilience in this market is a top priority.
What are the Fed’s Expectations?
While there are warnings from Fed members one after another, the number of banks offering positions to investors that the Fed will increase interest rates in 2022 and beyond is increasing.
Citigroup analysts suggested the eurodollar futures contract, which predicts a steepening yield curve from June 2022 to June 2025. Eurodollar futures contracts are a popular product to take a position on the Fed’s interest rate path expectation.
Swap markets are currently pricing in a 75% rate hike for the June 2022 Fed meeting. However, it predicts only six rate hikes in the same market by the end of 2025.