You may have heard there was a meeting of the Federal Open Market Committee last week. There was certainly plenty of interesting things to be read about that meeting in blogland. Kash suggested that the FOMC's post-meeting statement indicates the end of near-certain rate hikes at upcoming meetings, an opinion shared by William Polley. Mike Moffat agreed, calling the language of the press release "faily non-commital." Toni Straka saw a little something for both hawks and doves. The Capital Spectator snarked -- though not entirely unfairly -- that "If the Federal Reserve's announcement yesterday on interest rates was intended to keep the market guessing, the central bank scored a home run." Tim Iacono thinks maybe the Committee is "annoyed at the possibility that more rate increases may be needed". And Ben Carliner warned that the end of the tightening cycle may be premature (and beware ye carry traders). Barry Ritholtz took it all in, and warns that this all may end badly.
If you were the representative participant in the market for options on federal funds futures, you shrugged your shoulders. The baseline Carlson-Craig-Melick estimates still show a 60-40 split in favor of a pause in June (versus another 25 basis point increase)...
... and everything in more-or-less still in play for the August meeting:
You can play around with these estimates -- by adding a term premium adjustment, for example -- and get somewhat different numbers. But the basic conclusion survives: Wednesday didn't really change anyone's mind, and the waiting game continues.
The estimates from above, and alternative ones with term premia adjustments are a mere click away:
Download implied_pdfs_051206.ppt
Excel and flash files avaialble on request.
UPDATE: I neglected to reference the ever-reliable Tim Duy, who believes the markets have it just about right: The FOMC is planning for a pause, and watching to see if the data talks them out of it.
UPDATE, ONCE AGAIN: Stan Jonas, he of FIMAT USA and intrepid interpreter of all things fed futures, says "one can easily see that the market is 'pricing' a FED on pause by September versus an ECB that has a “cumulative” certainty of moving again."