100% probability of a December hike, Fed funds futures contracts show
The Federal Reserve is definitely lifting interest rates next month — if the market has priced a key contract correctly.
According to the trading of federal funds futures contracts, there’s a 100% chance — actually, a 100.2% chance — that the Fed will lift interest rates to a range between a half-point and three-quarters of a point, up from the current 25 to 50 basis points range. (The extra 0.2% implies there’s a very small chance the Fed could be even more aggressive.)
The trading comes in the wake of a number of speeches and comments from Federal Reserve officials, notably Chairwoman Janet Yellen, who last week said the central bank may lift interest rates “relatively soon.”
“Were the FOMC to delay increases in the federal funds rate for too long, it could end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of the Committee’s longer-run policy goals. Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and ultimately undermine financial stability,” Yellen said.
That said, traders don’t expect an aggressive course of hiking.
By the end of September 2017, they see roughly a two-thirds chance the Fed funds rate will be between 75 basis points and 150 basis points. In other words, after December, there will only be one or two more hikes over the next nine months.