The swap contract shows that the market expects the Federal Reserve policy interest rate to peak in May, and then will reduce the interest rate by 75 basis points by the end of the year

It is reported that the latest pricing of the overnight index swap (OIS) shows that the policy interest rate of the Federal Reserve will reach a peak of about 4.83% at the May meeting. Compared with the current level, it means that the Federal Reserve has about 25 basis points of room to raise interest rates, and then there will be about three interest rate cuts of 25 basis points each time at the December meeting. By contrast, last Friday’s closing level showed that the market expected the policy interest rate to reach a peak of 5.30% at the June meeting, while last Thursday showed that it would reach a peak of about 5.5% at the July meeting. The OIS linked to the December meeting has been reduced to slightly higher than 4%, which means that the interest rate will be reduced by about 80 basis points from the peak expected by the market in May, which is similar to three interest rate cuts of 25 basis points each time; December OIS closed at 4.90% on Friday.

Interpretation of this information:

The message indicates that the latest pricing of the overnight index swap (OIS) suggests that the Federal Reserve’s policy interest rate will peak at about 4.83% in May, which means there is room for the interest rates to rise by 25 basis points from the current level. However, the market expects that there will be three interest rate cuts of 25 basis points each at the December meeting, bringing the interest rate down by 80 basis points from its expected peak in May. Last Friday’s closing level showed that the market expected the policy interest rate to reach a peak of 5.30% in June, while last Thursday showed it would reach a peak of 5.5% in July.

The information provided in this message predicts possible changes in the Federal Reserve’s interest rates over the next few months, based on current market conditions. The keywords that summarize the content are OIS, interest rates, and Federal Reserve policy.