Futures Point to Increased Likelihood of December Rate Hike
Probability of Rate Hike in December Rises
The chances of a Federal Reserve rate hike in December have increased, according to futures contracts under the Federal Open Market Committee (FOMC). A recent report by Ann Saphir, Lucia Mutikani, and Siddarth S indicates a 40% probability of a rate hike, up from the earlier prediction of 28%.
Consumer Price Index (CPI) Exceeds Expectations
The report reveals a 3.7% increase in the Consumer Price Index (CPI), slightly surpassing the expected 3.6% rise. If implemented, another quarter-point rate hike could set the Fed policy rate to a range of 5.5%-5.75%. Traders now anticipate year-end rates for next year to be around 4.6%, higher than the pre-report prediction of 4.5%. However, the FOMC remains committed to its 2% inflation target.
Expert Interpretation and Market Reaction
Stuart Cole from Equity Capital sees the report as insufficient for immediate policy tightening but validates a ‘tighter for longer’ stance, keeping another rate rise in consideration.
On the same day, consumer inflation data led to an increase in Treasury yields and a slight dip in stocks, sparking speculation about another Federal Reserve rate hike. The four-day rise in stocks came to a halt as two-year yields climbed by eight basis points to 5.1%. Swap contracts tied to future Fed rate decisions now suggest a 50% chance of another quarter-point hike, up from nearly 30%.
Inflation Data and Wall Street Reactions
Last month, the core CPI, excluding food and energy costs, rose by 0.3%, and year-on-year, it increased by 4.1%. Overall CPI also rose by 0.4% due to energy costs. Wall Street reactions were mixed, with some predicting another rate hike by the Fed, while others believed current levels were appropriate.
Global Market Updates
In other news, Saudi Arabia and Russia reaffirmed their cooperation in the OPEC+ amidst ongoing events in Israel-Gaza. Global financial markets are currently downplaying the risk of a significant Middle East conflict.
This article provides an overview of the increased likelihood of a December rate hike according to futures contracts. The report highlights the CPI exceeding expectations and its potential impact on Fed policy rates. Expert interpretations, market reactions, and global market updates are also discussed.
