Up until this afternoon, while several banks - most notably Barclays, Jefferies and Nomura - were speculating that 75bps (or even 100bps) of rate hikes on Wednesday was possible, they were also viewed as unlikely because - as Standard Chartered's Steven Englander said earlier - this is "not a Fed that likes to surprise", while SGH Macro Advisors Fed watcher Ted Duy said, "The Fed has locked in 50-bp moves the for June and July meetings. A break with this near-term predictability “repudiates the Fed’s entire strategy.” It would sound like panic." Guy continued:
The Fed prefers using aggressive forward guidance, instead of surprise or super-sized rate hikes. The Fed can do more to accelerate policy tightening by adding in more rate hikes and a higher terminal rate in this cycle, than with just a 75bphike this week. Larger increments -- especially if they come sporadically -- might undermine the Fed’s efforts to push rates sustainably higher by risking a “market accident”
Well, panic it may be, because moments ago, the WSJ's in-house Fed
leaker whisperer, Nick Timiraos, who has repeatedly been used by the Fed to strategically leak key guidance to the market, just unleashed hell when he warned that the "string of troubling inflation reports in recent days is likely to lead Federal Reserve officials to consider surprising markets with a larger-than-expected 0.75-percentage-point interest rate increase at their meeting this week." He went on:
The Fed raised rates by a half-percentage point at its meeting last month, the first such increase since 2000, to a range between 0.75% and 1%. The Fed last raised rates by 0.75 percentage point at a meeting in 1994, when the central bank was rapidly raising rates to pre-empt a potential rise in inflation.
There is more in the article, but the gist is simple: the WSJ was teasing a 75bps rate hike as an all too real possibility, and the result was immediate - 2Y yields exploded to session highs, surging almost 25bps higher and briefly rising 3.40%...
...and sending odds of a 75bps rate to the highest ever, at 85%!
The news also slammed stocks to session lows, with the Emini tumbling 4% to as as low as 3,735.
50bp vs. 75bp Fed rate hike. M'eh. pic.twitter.com/SOxU67zojq— ForexLive (@ForexLive) June 13, 2022
So what's going on: is the Fed really about to signal "panic" and crush its forward guidance strategy, or is this just a ploy of making Wednesday's 50bps rate hike seem like a merciful dovish pivot? We'll find out in 48 hours, when the FOMC meeting ends, but in the meantime we have at least one crazy session with Japanese bonds, where - as explained previously - something will likely break, unless central banks step in to contain the carnage.