Last night, the Fed kept interest rates unchanged at 3.5%-3.75%, as expected.
As inflation concerns increase due to rising energy prices, the Fed is adopting a “wait-and-see” approach in its current policy stance. At this point, Fed Chairman Jerome Powell has indicated that they are ready to take steps towards raising or lowering interest rates.
While the Fed currently states that it is in neutral territory regarding interest rates, markets now see it as more likely that the Fed will raise interest rates this year rather than cut them.
According to the Wall Street Journal, following hawkish signals from Fed officials, Wall Street investors have begun betting on the possibility of the Fed raising interest rates this year.
Although the probability of a rate hike remains low, CME interest rate futures data shows that investors are pricing in an 11% probability of a rate hike this year.
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This rate was 5% earlier in the day and 0% on April 29th. In contrast, the probability of an interest rate cut remained at a relatively low level of around 2%.
At this point, the data indicates that expectations regarding interest rates are shifting from cuts to holding steady or increases. Experts consider future inflation data and statements from the Fed to be key variables in this context.
Finally, according to CME FedWatch, the probability of the Fed keeping interest rates unchanged in June is priced at 98.6%. The probability of a 25 basis point cut is priced at only 1.4%.
In July, the probability of interest rates remaining unchanged is priced at 96.5%, while the probability of a 25 basis point cut is priced at only 3.4%.
For September, the probability of interest rates remaining unchanged is priced at 96.1%, while the probability of a 25 basis point cut is priced at 3.8%.
*This is not investment advice.
