Fed could be back-tracking on rate hikes by 2024

Reuters is out with a report, looking at the slope of the eurodollar curve.

Market pricing for the December 2023 eurodollar contract showed an implied yield of 2.235%, which traders said can be a proxy for the federal funds rate, the rate banks charge each other for overnight loans to meet reserves required by the U.S. central bank.

That is looking likely to be the peak of the Fed rate-hike cycle, or the so-called "terminal rate," analysts said, with implied yields declining to 2.18% in the March 2024 contract , 2.125% in June , 2.095% for September , and 2.085% for December (below, note the retracement).

The idea is that if the Fed hikes faster, it will get to the terminal rate sooner and could overshoot. That thinking fits with what's happening at the long-end of the bond curve, where US 30-year yields have come back down to 2.24% from a high of 2.38%

All this is pointing to a market that doesn't think the Fed or the economy can sustain a Fed funds rate much above 2%.

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