The Federal Reserve continues to be expected to raise the benchmark interest rate by a quarter of a percentage point, according to forecasts by fed-funds futures traders. The current projections predict an increase from the current rate to a new range of 5.25% to 5.5%. This increase is anticipated to occur within the month. Despite this, the expectations for another quarter-point move in the months of September or November have decreased following a less-strong-than-expected rise in June nonfarm payrolls.
Fed-funds Futures Prediction Details
Fed-funds futures act as a helpful tool in providing a look into how the market anticipates Federal Reserve policies shifting in the future. Currently, there is a significant expectation for a quarter-point rise in the fed-funds rate at the July 26 meeting. This expectation is measured at a 92.4% probability according to CME FedWatch tool, reflecting little change from the previous day’s projection.
Probability Rates for Quarter-Point Rise
| Meeting Date | Probability Rate |
|---|---|
| July 26 | 92.4% |
| September | 22.8% |
| November | 36.5% |
Changes in Probability Rates
Though the probability of the quarter-point rise in July remains high, there has been a noticeable shift in the predicted outcome of the Federal Reserve’s policy meetings in September and November. These shifts were recorded after June’s nonfarm payroll numbers came in lower than originally forecasted.
Specific Changes in Probability Rates: September and November
- September Meeting: The expectation of a quarter-point increase in the fed-funds rate fell back to a probability of 22.8% on Friday. This was a decrease from 27.5% and can be seen as a reflection of the market’s reaction to the lower-than-expected nonfarm payroll numbers from June.
- November Meeting: The November expectations followed a similar trend. The market’s anticipation of a rate rise to between 5.5% and 5.75% fell from 40.2% to 36.5%. This slight decrease further emphasizes the influence of the June payroll numbers.
Conclusion
In conclusion, fed-funds futures traders continue to project a high likelihood of a 25-basis point increase in the benchmark interest rate this month. However, the probability for a similar rate rise in September or November has slightly dipped, likely due to recent, weaker-than-anticipated nonfarm payrolls numbers. This data shows how market expectations can shift based on various economic factors and data releases. Regardless, the predicted increase for July reflects a strong confidence within the market for a short-term rate hike.