Chances of Rate Hike Falls as Fed Cuts Debt

Chances of Rate Hike Falls as Fed Cuts Debt

Chances of Rate Hike Falls as Fed Cuts Debt

Fed officials have indicated they will begin to reduce the central bank’s $4.5-T of Treasury and mortgage debt. The debt was bought from banks for several years after the Y 2008 financial crisis as a way of pushing down interest rates to help the economy recover.

Interest rates fall as bond prices rise.

Wednesday the Fed published notes from its May meeting that said “most” members of the FOMC showed a willingness to hike interest rates again “soon.” The pace of rate hikes was open for debate.

“Most participants judged that if economic information came in about in line with their expectations, it would soon be appropriate for the Committee to take another step in removing some policy accommodation,” the mins said.

Investors also are now questioning whether it will happen at the 13-14 June FOMC or even in September.

The central bank also will keep an eye on inflation indicators to determine the direction of consumer demand, she said.

“We’ve seen rents start to come down in many major metropolitan areas. That will feed into the inflation metrics that they pointed out in these minutes. They’re concerned that inflation is declining,” said Danielle DiMartino Booth, a former adviser to the Federal Reserve Bank of Dallas. She added, “that once the central bank starts to cut its bond holdings, the chances of a rate hike also are reduced.”

Traders are pricing in a nearly 83% chance of a 25-bpt increase to the federal funds rate when the FOMC meets 13-14 June according to CME Group fed funds futures.

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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