The bond market is starting to doubt whether the Federal Reserve will be able to raise interest rates at all this year, as the global economic outlook dims.
With inflation expectations tumbling and stock markets crashing to start the year, traders have gone from betting on two Fed increases in 2016 — half the pace policy makers signaled last month — to less than one.
Judging by futures prices, investors see the fed funds effective rate rising to 0.59 percent by year-end. That’s short of the roughly 0.62 percent level that would signal one rate increase, assuming the Fed raises its target range by 0.25 percentage point, following liftoff from near zero last month. Futures imply a one-in-five chance the Fed will boost rates at its March meeting, and it’s not until November that the chances exceed a coin flip, data compiled by Bloomberg show.
“Our view is, we’ll be lucky to get one more Fed increase through 2016,” said Sean Simko, who manages $8 billion at SEI Investments Co. in Oaks, Pennsylvania. “The Fed will remain sidelined until the data presents a clear picture.”