FedWatch Tool Shows Growing Probability of a Fed December Rate Hike

The chances of an interest rate hike announcement in December have increased in recent days, according to a new Bank of America report published ahead of the Federal Reserve’s meeting this Wednesday.

“Interestingly, market expectations for December have climbed higher over the past few days, pricing in nearly even odds of a move in December,” strategists and economists, led by chief U.S. economist Michelle Meyer, wrote in a Friday report.

In the report, titled “Like Watching Paint Dry,” the strategists pointed out that the overnight index swap market is pricing in a roughly 45 percent chance of a hike in December, up from just 20 percent toward the end of the week ending Sept. 8. The report’s authors anticipate the next hike will come in December, with three more hikes next year. This increase in expectations comes on the heels of firming inflation figures.

Echoing a similar sentiment, Goldman Sachs economists said last week that the chances of a third rate hike this year have risen to 60 percent, from 55 percent, after the Consumer Price Index rose considerably in August.

As measures of inflation in the U.S. had again and again missed economists’ expectations this year, the likelihood of further rate hikes has been called into question.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza