FAST FIVE: Fed Funds Prints 2.30%, Breaching Target Range For The First Time, As Libor Replacement Soars To "Remarkable" 5.25%
Source: Bloomberg, Zerohedge And yes, it is quite ironic that on the day the Fed is cutting rates, the Fed Funds was just “pushed” above the top end of the target range for the first time ever.
Shortly after 4pm the market was given another jolt of adrenaline as news of a second Fed operation to be conducted tomorrow morning at 8:15am caused the spot-6mo curve to go bid into the close.
If Powell is successful at guiding the market toward assuming a mid-cycle adjustment, one specific repricing that will occur is in 2020 forwards, which are still factoring in one and a half 25 bp cuts next year as shown in the attached (admittedly, precision here is difficult due to the illiquidity of the Jan '21 contract).
This contrasts with the FOMC's desire to execute a more modest drop in overnight rates and the price response here will be a focal point in determining how markets are responding to the impending Fed communication.
And so with funding generally locked down for the rest of the day, everyone will now turn attention to what Powell says and how he proposes to ease the funding panic at 2pm today when the FOMC cuts rates by 25bps.