Looking to the Futures

Fed Funds Dips Following CPI, Fed Announcement

Key Points

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Last week’s CPI data and Wednesday’s FOMC announcement and press conference combined to drive markets lower. From the close on Monday September 12, the S&P 500 was down 8.6%, the NASDAQ 100 was down 9.7%, the Russell 2000 dipped 9.7% and the Dow gave up 7.1%. While the headline change of a 75 basis-point increase met expectations, there was other news in the report that chilled investor sentiment. Taking a deeper look at the Fed’s announcement, the peak fed funds rate estimate in the “Dot Plot” rose from 3.8% in June to 4.6%, with the peak estimated to come in 2023 before dipping to 3.9% in 2024 and 2.9% in 2025. The projected 4.6% top is the highest in the dot plot’s history, going back to 2012. If the rate reaches that level it would be the highest since September 2007.

In their projections and in their statements, Fed officials acknowledged the anticipated negative consequences of the rate hike regime. The unemployment rate is expected to rise, with an upper estimate of 5.0% in 2023 and 4.7% in 2024, both up from their projections in the June meeting. While not as blunt as his comments at the Jackson Hole summit, Fed chair Jerome Powell said in a statement: “Reducing inflation is likely to require a sustained period of below-trend growth, and there will very likely be some softening of labor market conditions.”

The October 2022 30 Day Federal Funds contract dropped on last week’s CPI news. It then rallied after Wednesday’s Fed release. Conversely, the Fed release pushed the October 2023 contract lower. The divergence is likely due to the rate hike being 75 basis points (rather than a full point) rallying next month’s contract, while the heightened peak anticipated on the dot plot drove next October’s contract lower.


The contract has been trending steadily lower since last year, breaking above the 50-day SMA only once this year. There have not been any 50-day/20-day SMA crossovers this year. The RSI reached oversold territory on September 13 at 19.8% before reversing and is trending towards 50%.

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