A Fed Pivot? Not a Chance, Says the Futures Market

Pivot? What pivot? Contrary to some hopeful folks on Wall Street, the futures market expects the Federal Reserve won’t reverse itself on its rate raising campaign—i.e., do a pivot.

Now, the traders who traffic in the CME Group’s futures contracts are not all-knowing seers. Yet tapping their thoughts has long been a way investors decide what assets to buy and sell.

Fed officials have scrambled to make clear that they intend to keep increasing interest rates to choke off inflation. They have left ambiguous at what juncture they might stop, saying they will be guided by economic data.

Still, a number of Wall Street strategists believe that economic weaknesses are showing up—for example, layoffs in interest-rate sensitive sectors such as housing and finance—and thus they expect the Fed, at some point, to pivot and bring rates back down.

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Wednesday morning’s Consumer Price Index for July, expected to be around 8.8%, is likely to touch off this debate anew. A drop in the CPI, however small, may cool off sentiment that inflation is worsening, and foster talk that it has peaked.

The futures market anticipates that the Fed, when it meets in September, will boost its benchmark rate by another 0.75 percentage point. That would put the range for the federal funds rate at 3.0% to 3.25%.

What’s interesting is that, by July 2023, almost a year from now, the futures market overwhelmingly foresees it at the same level, or just a quarter-point higher. Hardly any of the betting is on a reduced benchmark, as in a pivot.

The Pension Benefit Guaranty Corporation has agreed to provide more than $800 million under its Special Financial Assistance Program to two pension funds covering over 22,000 participants.

The lion’s share of that amount, $715 million, will go to Pittsburgh’s Western Pennsylvania Teamsters and Employers Pension Plan, which covers over 21,000 participants in the transportation industry.

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The plan had implemented a benefit suspension under the terms of the Multiemployer Pension Reform Act of 2014 in August of 2019, which reduced the benefits of approximately 15,000 plan participants by an average of 20%. The PBGC’s approval of the SFA application will allow the pension plan to restore all benefits suspended under the terms of MPRA and to make payments to retirees to cover previous benefit suspensions.

“The Special Financial Assistance approved today means that these 21,110 transportation workers and retirees will receive the full retirement benefits they earned,” Secretary of Labor Marty Walsh, who is also chair of the PBGC’s board of directors, said in a statement. “Since 2019, they have been receiving reduced pension payments through no fault of their own.”

The PBGC also approved the application of the Pension Plan of the Printers League – Graphic Communications International Union Local 119B. The plan, which is based in East Farmingdale, New York, covers over 1,200 participants in the printing industry and will receive $85.2 million from the agency.

The PBGC has been providing financial assistance to the GCIU Local 119B Plan since it became insolvent in August 2021. As required by law, the plan reduced its participants’ benefits to the PBGC guarantee levels, which was approximately 31% below the benefits payable under the terms of the plan. The SFA approval means the plan will be able to restore benefit reductions caused by its insolvency and to repay retirees for prior benefit reductions.

The SFA Program was enacted under the American Rescue Plan Act of 2021, and is intended to provide funding to severely underfunded multiemployer pension plans. As of July 29, the PBGC has approved over $7.4 billion to plans that cover more than 149,000 workers and retirees.