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Expectations for Fed December rate hike increase following release of inflation data.

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Expectations for Fed December rate hike increase following release of inflation data.

Traders Expect Higher Chance of Fed Rate Hike After Inflation Data

Traders Optimistic About Fed Rate Hike

Traders are feeling optimistic about the Federal Reserve’s decision to possibly deliver another interest-rate hike this year and maintain higher rates into the next year. This sentiment comes after the release of U.S. data that revealed consumer prices rose more than anticipated in September.

Increased Probability of Rate Hike

Futures contracts, which settle to the Fed policy rate, now indicate a 40% probability of a rate hike in December. This is an increase from the previous 28% chance reported before the release of the consumer price index, which showed a 3.7% rise compared to expectations of a 3.6% increase.

Rate Hike Impact

If the Fed implements another quarter-point interest-rate hike, it would bring the Fed policy rate to a range of 5.5% to 5.75%. Traders are now predicting interest rates to end next year approximately 1% lower at 4.6%, compared to the previous forecast of 4.5%.

Targeting Inflation

The Federal Open Market Committee has a target inflation rate of 2%. Despite the positive inflation data, it is unlikely that the committee will tighten policy in November. However, the report justifies the committee’s stance of maintaining “tighter for longer” policies and keeps the possibility of future rate hikes on the table.

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