Four Rate Hikes Priced In for 2022

Four rate hikes now priced in for 2022. Selling pressure reignited across the curve today as investors cranked up their bets for Fed policy tightening. Treasury yields jumped to multiyear highs across the curve, and for the first time Fed Funds futures now imply four rate hikes in 2022. Even the Bank of Japan, where negative policy rates have been a mainstay, adjusted its inflation projections higher for the first time in 8 years. When it was all said and done, the 10-year Treasury yield closed 9 basis points higher to a multiyear high at 1.873%.

Omicron’s effects on the U.S. economy starting to show. Omicron has spread like wildfire over the past couple months, with recent economic data releases starting to reveal the havoc the highly transmissible variant has caused. The New York Fed released its general business conditions index this morning showing economic activity contracted in January with a reading of -0.7, well below analyst expectations of 25. A number below zero indicates contraction. This is the first time the index has been negative since June 2020. The report also showed elevated expectations of inflation as expected prices paid and received over the next six months reached record highs.

Drone strike on Abu Dhabi roils oil markets. Three people have been reported dead due to a drone attack at Abu Dhabi’s main airport which also set ablaze an industrial area with fuel trucks. Abu Dhabi is located in the United Arab Emirates, which is OPEC’s third-largest oil producer. The attack sent crude oil to its highest level in seven years adding to the already current inflationary pressures.