Fed Funds Rate Hike Expectations Rise

by Warren Seah

Fed funds futures traders are increasing their expectations for a post-July rate hike by the Federal Reserve, following remarks from Fed Gov. Christopher Waller. Despite cooling inflation data in June, Waller remains steadfast in his support for two more rate hikes this year.

Traders Pricing In Rate Hike by November

Waller’s remarks have prompted traders to adjust their predictions, now pricing in a 23.5% chance of a rate hike by November. This potential hike would increase the fed funds rate to between 5.5% and 5.75%, up from its current level of 5% to 5.25%. These calculations also consider the widely anticipated quarter-percentage-point rate hike on July 26.

Possibility of Even Higher Rates

Interestingly, traders are not ruling out the possibility of an even higher fed funds rate target. There is a slight 1.9% chance that the rate could reach between 5.75% and 6% by November.

Treasury Yields Showing Strength

Furthermore, Treasury yields experienced a rise on Friday morning. The policy-sensitive 2-year rate rebounded from a one-month low and reached 4.68%.

These developments indicate an increasing likelihood of a rate hike in the near future, reflecting the confidence placed in the Federal Reserve’s rate outlook.

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