Back in September, we remember that Fed’s Officials raised their median estimates for the FF rates as some US policymakers had in mind a more aggressive path concerning rate hikes. Based on the Fed’s dot plot (see Dollar pause, but when?), the estimates were FF rates of 1.375% and 2.5% by the end of 2015 and 2016 respectively.
Out of the 10 members of the board, two hawks – Philadelphia’s Plosser and Dallas’s Fisher – and disapproved the September’s statement as both of them have been critical of the Fed’s money-pumping strategy and are concerned that a long period of low interest rates could generate inflationary pressures (inflating asset prices, therefore destabilizing the financial markets).
However, after yesterday’s meeting, it is a different story. If we look at the STIRs futures market, we can see that the implied rates on the FFZ5 (White Line) and FFZ6 (green line) suggest that we will finish the next couple of years at 56bps and 1.56%, both down 20bps and 30bps since Sept 19th low.