The minimum objective in EDZ5 at 99.53 noted in a Nov. 19 post has been reached as economic agents continue to price greater odds of a policy response at the December FOMC meeting. As noted before, there remains room for further declines in EDZ5 from here, but it is difficult to imagine EDZ5 prices well under 99.50 as this would indicate a more full ‘take up’ of a policy rate shift and or the pricing of greater prospects for a January FOMC rate hike.
A full take up of a shift for fed funds policy rate from 0-25 to the mid-point of 25-50 bps or 37.5 basis points would imply EDZ5 as low as 99.42. Strong expectetations that funds-providing constituants, who do not have access to the fed funds market, will prevent that rate from initially achieve the middle of the new target range.
For the Fed to come consecutively in December and January with policy rate moves would be inconsistent with the strongly voiced interest in moving gradually in adjusting toward a more normal policy stance.
Remembering too that the December Eurodollar futures contract expires a couple days before the December FOMC meeting. Because of this, we should not expect a EDZ5 to show a 100% buy-in to the Fed raising the fed funds rate at the December FOMC meeting.