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Futures Point To Increased Likelihood of December Rate Hike

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© Pavlo Gonchar / SOPA Images/Sipa via Connect

The probability of a Federal Reserve rate hike in December has increased, according to futures contracts under the Federal Open Market Committee (FOMC). This follows a report published on Thursday by Ann Saphir, Lucia Mutikani, and Siddarth S, indicating around a 40% chance of a rate hike, a rise from the earlier 28%.

The report outlined a 3.7% Consumer Price Index (CPI) increase, slightly surpassing the expected 3.6%. If another quarter-point rate hike is implemented, it could set the Fed policy rate to a range of 5.5%-5.75%. Traders now expect next year’s year-end rates at approximately 4.6%, an uptick from the pre-report prediction of 4.5%. The FOMC, however, remains steadfast in its 2% inflation target.

Stuart Cole from Equity Capital interpreted the report as insufficient for immediate policy tightening but validating 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. This sparked speculation about another Federal Reserve rate hike. The ‘s four-day rise was halted, with two-year yields climbing eight basis points to 5.1%. Swap contracts tied to future Fed rate decisions pushed the likelihood of another quarter-point hike to about 50%, up from nearly 30%.

The core CPI, excluding food and energy costs, rose by 0.3% last month and by 4.1% year-on-year, while overall CPI increased by 0.4% due to energy costs. Wall Street reactions were mixed, with some predicting another rate hike by the Fed, while others suggested current levels were appropriate.

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 was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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