Markets now pricing 200bps of further tightening from Fed by end of 2022

US money markets are pricing an additional 200bps in interest rate hikes from the US Federal Reserve by the end of 2022, Bloomberg reported citing Fed swaps. US yields have been moving higher in recent trade to reflect the ongoing hawkish repricing, with the 2-year hitting fresh multi-year highs above 2.25% and 10-year also hitting fresh multi-year highs above 2.45%. 

Analysts at Citi recently tweaked their Fed call and now see four successive 50bps hikes from the central bank at its next four policy meetings. Citi predicts there will be a total of 275bps in tightening in 2022 (meaning rates ending the year at 2.75-3.0%), followed by more hikes in 2023 that will see rates hit 3.50-3.75% but the year’s end. Risks to the terminal rate remain to the upside given upside risks to inflation, the bank said. 

Market Reaction

Market commentators said the new call from Citi sparked the upside in US yields but, interestingly, this has not sparked further upside in the US Dollar Index (DXY), which, though off earlier sub-98.50 lows, has been unable to mount a sustained rally back towards 99.00.