Money Markets Cement Bets on Early 2023 Hike After Clarida

(Bloomberg) -- Money-market concerns that a weaker-than-expected economy might delay Federal Reserve policy tightening proved short-lived Wednesday, with hawkish comments from Vice Chairman Richard Clarida helping to cement bets for an initial rate hike in early 2023.

A softer-than-anticipated report on company jobs growth from ADP earlier in the day helped spur a rally in eurodollar futures, which at one point showed the first quarter-point hike coming somewhere around June 2023. That was rapidly unwound after Clarida said that the “necessary conditions for raising the target range for the federal funds rate will have been met by year-end 2022.”

Clarida also noted he’d be in favor of the Fed making an announcement later this year that it will begin to scale back its bond purchases, in case growth stays strong.

“Clarida’s comments are mildly bearish” for Treasuries, said Mike Schumacher, head of macro strategy at Wells Fargo. “It’s interesting that he could support a taper announcement this year.”

The 10-year Treasury yield, which had earlier fallen as much as five basis points to 1.13%, rebounded after Clarida’s comments before closing at 1.18% at the end of New York trading session.

San Francisco Fed President Mary Daly echoed calls for tapering, saying officials may start tapering asset purchases later this year or in early 2022, according to an interview on PBS aired after the close of trading. Treasuries remained under pressure in Asia, with 10-year yields touching 1.20%.

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