Fed June hike odds can rise to 45-50% before they stabilise - Westpac

Richard Franulovich, Research Analyst at Westpac, suggests that US interest rate markets finally “get the message” that June is live, the market implied probability hitting 30% after the hawkish tone in the FOMC minutes from almost zero just several days ago.

Key Quotes

“Those odds should drift higher still amid a long list of Fedspeakers in the next two weeks including Chair Yellen, Deputy Chair Fischer, Dudley, Tarullo, Bullard, Williams, Harker and Kaplan. Note the Fedspeak calendar now also includes Chair Yellen for 6 June, the last engagement before the Fed blackout period ahead of their 15 June meeting, lest there be any residual doubts left about the Fed’s intentions then.

Would not be surprised to see June hike odds rise to 45-50% before they stabilise. Upside risks to the USD should not extend much beyond May payrolls (3 June) though, striking Verizon workers and auto supply disruptions after the Kumamoto earthquake could see May payrolls print as low as 100k and it’s not clear that Chair Yellen has shed her uber-cautious stance.”