With all the rhetoric about the "self sustaining" recovery, some may forget that back in early 2010 we went through exactly the same song and dance. As we pointed out recently, comparing speeches by James Bullard showed absolutely no difference from the end of March 2011 and 2010. And keep in mind that in early 2010 we had precisely the same "jump" in economic data as we are supposedly experiencing now. Well, we all know what happened in 2010. But to confirm just how short institutional and investor memories are we present the Fed Funds futures for December 2010 (Z0) and December 2011 (Z1) as of today and as of a year ago. Basically, investors were pricing in a nearly 50% higher Fed Funds rate back in 2010: according to the FFZ0 the expected Fed Funds rate a year ago looking out to December 2010 was about 60 bps (and the December 2011 expectation was at about 2%). Compare that to the expectation of roughly 40 bps in the FF rate for December 2011 as of now. So basically when the market expected a much stronger response by the Fed a year ago, what we got instead was... QE2 5 short months later. So is it fair to say that despite all the Fed jawboning back then, absolutely the opposite happened. But that's ok - this time is really different. Dudley promises...
Current +9 months Fed Funds rate expectations for December:
+9 month December 2010 Fed Funds rate expectations back in April 2010:
And expectations for the December 2011 FF a year ago. Can one say rejected?