Cunningham on Fed funds futures
Federated Investors' latest "Month in Cash" is entitled, "The futures market is saying what Ben won't." Taxable Money Market CIO Debbie Cunningham says, "The fed funds futures market continues to signal a blip up in rates by year-end, a move neither Federal Reserve Chairman Ben Bernanke nor official Fed policy reflects. Perhaps that's understandable. Bernanke has said he knows how to fight inflation but not deflation, so if he errs, he's likely to err on being too slow to pull in the reins, not too fast. But what the money markets and the broader markets are telling us is that while the low-rate environment is likely to stick around for a while, that doesn't mean the target funds rate necessarily will stick around at the historically low levels of the past few years. As we noted last month, "exceptionally low" doesn't have to translate into the current 0% to 0.25% target range. It also doesn't mean the Fed's current hands-off directive on fed funds "until late 2014" is set in stone. A lot can happen between now and the end of the year, of course. But from a rate perspective, we continue to see an improving tone in the money markets. Repo rates remained in the mid- to high-teens in the past month, considerably higher from where they started the year."
