Despite the US FED saying that it would support a 25bp interest rate hike in March 2022, we would still analyze the 3 FED rates to determine the Fed's move.
IORB: 0.15%
The IORB has been relatively stable at 0.15% and is within the FED range of 0 to 0.25%.
EFFR: 0.08%
The EFFR had been hovering between 0.07% and 0.08% for the past few months.
On RRP: 0.05% (Fed is paying.)
On RP: No transaction at 0.25%. (Fed is receiving.)
EFFR: 0.08%
IORB: 0.15%
When the EFFR (0.08%) is lesser than IORB (0.15%), it means that the US is still under the monetary easing condition. The high cash of US$1.56T deposited with the US FED also shows that there is excess liquidity and the banks have nowhere to invest in other profitable investments. Thus, we do not see any stress in the US financial system and the US FED will just hike 25bp in March 2022 as stated.
Furthermore, the CME Fedwatch tool is also projecting a 25bp in March 2022. Conversely, the black swan event to watch out for will be the announcement of FED's asset sales. If the FED begins to sell its assets in the 1st half of 2022 which is earlier than expected, this will cause the stock market to fall heavily.
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