What will the Fed do for its September meeting? - Part 2

Let's do our standard analysis on the US FED rates to forecast the FED outcome.

The Fedwatch tool is projecting a 75bp hike with a high probability in excess of 80%.

Let's start our 3 FED rates analysis now.

IORB: 2.4% vs 1.65% in August

The IORB (2.4%) is still within the current fed rate range of 2.25-2.5%.  No stress is detected.

EFFR: 2.33% vs 1.58% in August

The EFFR (2.33%) is still within the current fed rate range of 2.25-2.5%.  No stress is detected.

On RRP: 2.3% vs 1.55% in August (Fed is paying.)

On RP: No transaction at 2.5%. (Fed is receiving.)

EFFR: 2.33%

IORB: 2.4%

When the EFFR (2.33%) is lesser than IORB (2.4%), it means that the US is still under the monetary easing condition.  The high cash of US$2.24T 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 hike 75bp in September 2022 as stated because the Fed can still do an emergency hike if necessary.

The Chicago national financial condition index is also showing that the US is under the monetary easing condition (Negative).

If the financial condition index starts to creep into the positive zone, this means the US is likely to be in a recession already.