U.S. rate futures raise odds for hefty rate hike in May after Powell comments

NEW YORK (Reuters) – Federal funds price futures on Monday raised the probabilities of a half percentage-point tightening by the Federal Reserve on the subsequent coverage assembly in Could, after hawkish feedback from Fed Chair Jerome Powell.

Powell mentioned on Monday the Fed should transfer “expeditiously” to carry too-high inflation to heel, and can, if wanted, use bigger-than-usual rate of interest hikes to take action.

In late afternoon buying and selling, price futures confirmed a 63% likelihood that the Fed will increase rates of interest by 50 foundation factors in Could to 0.75%-1.00%, lower than per week after the Fed hiked by a quarter-point to 0.25%-0.50%.

“Fed Chair Powell was a extra hawkish than we, and the market anticipated, emphasizing the necessity to assault inflation fairly than take a cautious method because of the numerous uncertainties over development,” mentioned Motion Economics in its newest weblog.

“Is he setting the markets up for a 50 basis-point hike in Could? It is usually the case that steadiness sheet discount is anticipated to be introduced in Could, with some insights earlier than that to be seen within the minutes due on April 6.”

For the 12 months, futures have priced in 184 foundation factors of coverage tightening.

Futures had priced in a roughly 52% likelihood of a 50 basis- level hike on the Could assembly simply earlier than the textual content of Powell’s feedback to a Nationwide Affiliation of Enterprise Economics convention was launched.

Different metrics such because the CME FedWatch device confirmed a 48.4% chance of a 50-basis-point hike in Could.

(This story inserts dropped identify, Powell, in 2nd paragraph)

(Reporting by Gertrude Chavez-Dreyfuss and Alden Bentey; modifying by Jonathan Oatis)

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