As the Federal Reserve’s policy announcement looms, fed funds futures traders are displaying an increasing seriousness towards a post-July rate hike by the central bank. Even before the official statement is released, these traders have slightly raised the likelihood of the fed funds rate target reaching at least 5.5%-5.75%, or even higher by November, to 40.4% compared to 39.2% just a day ago. It is important to note that these probabilities factor in an expected quarter-point rate hike today.
Furthermore, the calculations also consider the slim possibility of the Fed’s main interest-rate target ranging between 5.75%-6% or 6%-6.25% within four months. This demonstrates that financial markets are actively trying to gauge the most probable trajectory for the Fed moving forward. Notably, policymakers decided to pause rate hikes in June due to inflationary concerns, which were relatively higher at that time compared to the present.
In response to these developments, treasury yields experienced a downward trend during afternoon trading as market participants anticipate the Fed’s decision to initiate rate cuts in 2024.