(Bloomberg) -- Just one day after the Federal Reserve kicked off its cycle of interest-rate increases, traders are speculating the central bank will start easing monetary policy again in less than three years.
The implied yield on December 2024 eurodollar futures is 2.39%, or 28 basis below the year-earlier contracts, indicating that traders expect the Fed’s benchmark rate will be cut over that time. The gap was 0.2% on Tuesday before the Fed policy meeting and was at zero as recently as in February.
The pricing reflects the risk that a series of aggressive interest-rate hikes aimed at slowing inflation will weaken economic growth or even tip the economy into a recession. That concern is evident in the Treasury market, where the gap between 5- and 10-year yields has collapsed, signaling expectations that growth will slow.
The Fed boosted its key rate to a target range of 0.25% to 0.5% Wednesday. In its so-called dot plot, officials’ median projection was for the benchmark rate to be increased to 1.9% by the end of 2022, hit about 2.8% in 2023 and remain steady in 2024.
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