US economy

Markets dial back bets on Fed rate rises in 2019


The renewed market turmoil has led traders to dramatically ratchet back bets on Federal Reserve interest rate increases over the coming years, with the biggest implied odds now on an extended “pause” through 2019.

Fed funds futures, derivatives contracts investors use to wager on interest rates, now indicate that there is a 63 per cent chance the Fed still raises interest rates later this month — down from over 80 per cent in mid-September — and rising expectations of a central bank “pause” through 2019.

But the biggest reappraisal of Fed interest rate increases is for 2019, with more investors now debating whether the central bank will largely sit on its hands for most of the year.

Assuming policymakers follow through with a quarter-percentage point increase later in December, Fed funds futures are pricing in nearly a 40 per cent chance the central bank doesn’t touch interest rates again next year, and a 33 per cent possibility the Fed only lifts rates once. Markets are pricing in a mere 2 per cent chance that the central bank raises rates by the three times it indicated in September.

Moreover, futures contracts indicate traders now expect the Fed to start cutting interest rates again in 2020.



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