Bond traders are rapidly repricing the Federal Reserve’s policy path after Kevin Warsh used his first meeting as Fed chair to deliver a more hawkish message on inflation.
More than 500,000 August fed funds futures contracts changed hands on Thursday, according to Chicago Mercantile Exchange data cited by Bloomberg. The volume was roughly four times the 20 day average and marked a record for the contract.
The surge came after Warsh emphasized the Fed’s price stability mandate and renewed the central bank’s commitment to bringing inflation back to its 2% target.
“Warsh rarely mentioned employment and brought forward the price stability mandate in his narrative,” said Christophe Boucher, chief investment officer at ABN AMRO Investment Solutions. “The start of his term signals that the Fed will be much more focused on inflation.”
The August fed funds contract expires before the Fed’s September policy meeting, making it a direct vehicle for wagers on the July 31 decision. Open interest in the contract rose by 67,000 futures, equal to about 15% of the outstanding risk in that tenor.
