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The Fed is trapped

As the market is still digesting the 9.1% inflation increase for June, two remarkable things happened yesterday: (1) the probability of a 75 bps #ratehike on the July #fomc has gone down from 100% to 30ish%, simply because the probability of 100 bps hike has increased to 70ish%. But more importantly, and as you can see in the chart below, (2) Eurodollar futures are discounting a rate CUT during 1Q2023. That means the market is discounting the #fed is going to push the economy into #recession by hiking aggressively now, trying to combat #inflation and may be forced to stop and reverse course on their tightening monetary policy as soon as 6 months from now.

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Source: Bloomberg

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