May Rate Hike Expectations: 35% Bloomberg, 7.2% CME

Rate hike expectations are the widest I have ever seen. Consider Bloomberg vs CME.

On May 2, the Fed meets to set interest rate policy. Bloomberg see its this way.

CME Fedwatch has it like this.

Bloomberg Silliness

I believe the Bloomberg forecast is silly but there is no way to prove my assessment.

If the Fed does not hike, Bloomberg still had a 65% probability the Fed would not hike, and it will insist it got the forecast right.

Even if the Fed does hike, CME had a non-zero (7.2%) chance the Fed would hike.

If there was a way to arb the spread, it would likely pay off in spades to do so. Regardless, either CME or Bloomberg is way off on their model.

With two days to go before decision time, I strongly suggest Bloomberg is radically wrong.

Mike "Mish" Shedlock

Comments (3)
No. 1-3
GetaCLew
GetaCLew

Bloomberg uses target range midpoints to calculate probabilities, including the front-end meeting. For the current range, that's 1.625%.

CME Group uses the current FF effective rate for the front-end calculations. That's 1.68%.

The May contract is priced at 1.7025%. That's ~35% of a hike if we assume 1.625% is the current target, and ~7% if we assume 1.68% is the current target.

I don't think Bloomberg has a silly forecast , perhaps just silly assumptions for the front meeting.

elliot2
elliot2

The FOMC should raise rates tomorrow. Investors are focused on the data listed on Bloomberg's ECO function. Data NOT on ECO shows inflation above the 2% Fed inflation target. Employment Cost Civilian Workers (YOY NSA) up 2.7% Employment cost compensation civilian workers (YOY NSA) up 2.7% Personal Income (quarterly basis YOY SA) up 3.6%. Core PCE QoQ (that's on ECO) up 2.5%. Assuming they spend two days looking at all the data, they should raise rates.

Ambrose_Bierce
Ambrose_Bierce

LIBOR has cooled off a bit, although current fed real rates are slightly higher at 1.75%. Does another month matter? There is also market perception that the Fed might change rates whenever they go$%&wellfeellikeit, which takes us into new territory.