The market suddenly doubts the Fed will raise rates twice more this year

A recent string of less-than-stellar economic news has injected some uncertainty into whether the Fed will deliver a steady diet of rate increases ahead.

In fact, current trading in the Fed funds futures market indicate that the U.S. central bank will not be able to enact the two additional rate hikes that officials have indicated are on the way this year.

As of Thursday afternoon, market indications were for a 57.3 percent chance of a quarter-point increase in the benchmark short-term rate in June, while there’s just a 41.1 percent probability that it would move again in December. The June probability was less than 50 percent on Wednesday but rose Thursday on the heels of better-than-expected 0.4 percent growth in the leading economic indicators barometer and a stock market rally.

Those expectations are counter to the past couple months, when investors grew more comfortable with the idea that the Fed would be able to lift rates off their crisis-era lows. The first rate hike since mid-2006 happened in December 2015, with the next one not coming again until December 2016. The policy-making Federal Open Market Committee hiked again in March, with officials then pointing to a total of three moves for the year.

continue reading »

More News