By Jack Mendel
Interest rate futures tied to the Federal Reserve’s policy rate slightly increased the chances of tightening by the U.S. central banks at both the November and December policy meetings after Chair Jerome Powell’s speech.
The Fed is widely expected to hold rates steady at the Sept. 19-20meeting.
Powell said on Friday Fed policymakers would “proceed carefully as we decide whether to tighten further,” but also made clear that the central bank has not yet concluded that its benchmark interest rate is high enough to be sure that inflation returns to the 2% target.
He delivered the remarks at the annual economic symposium hosted by the Kansas City Fed held in Jackson Hole, Wyoming.
In choppy trading, Refinitiv’s FedWatch showed a roughly 46% chance of an interest rates increase of 25 basis points at the November and December meetings to a range of 5.50% to 5.75%, compared with 42.7% and 40.9% before Powell spoke.
At the CME, its own FedWatch tool showed the rate hike odds were roughly the same: 41.2% at the Oct. 31-Nov. 1 meeting and about 39% at the final meeting of the year on Dec. 12-13. A week ago, the rate increase chances were at 33% and 29%, respectively.
Interest rate futures tied to the Fed policy rate have shifted notably over the last few weeks.
A recent backup in Treasury yields may help buttress the Fed’s efforts to weaken demand and slow the momentum of an economy that has so far mostly shaken off the most aggressive monetary tightening in more than a generation.
The Fed has jacked up its policy rate from near zero in March 2022 to the current range of 5.25% to 5.50%, but unemployment remains at a historically low 3.5% and overall economic growth has defied expectations that it would falter.
Alongside the rise in bond yields, rate futures have notably repriced as well. While expectations remain firmly in place for the Fed to stand pat next month, the shift in rate futures now put an increase at either of the final two meetings of the year squarely in play.
Reuters – Dan Burns and Gertrude Chavez-Dreyfuss
