Federal Reserve: Market mispricing risk into blackout – TD Securities
TD Securities’ Molly Brooks analyzes how US rates markets are pricing the September Federal Reserve meeting, highlighting unusually high uncertainty around a potential hold or 25bp hike.
TD Securities analyst Molly Brooks reveals that US rates markets are pricing the September Federal Reserve meeting with unusually high uncertainty, suggesting a potential hold or a 25 basis point hike. Going into the blackout period, markets are the most mispriced for both outcomes. Historically, large deviations have occurred around 7bp for a standard meeting and +/-9bp for a 25bp hike.
Friday's pricing implies a 15bp deviation for a hold and a 10bp deviation for a hike, indicating the highest uncertainty in both scenarios. The August CPI report is expected to drive significant repricing in rates, determining whether investors should fade the current pricing or pay for a hike. Market uncertainty around the Fed's action in September remains high, with the Fed's stance hinging upon the August CPI report.
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