The Federal Reserve will not cut interest rates this year, and traders of short-term U.S. interest-rate futures are now betting the U.S. central bank will raise in the first half of next year, after the Fed left short-term borrowing costs on hold for the third straight meeting this year and three policymakers dissented against its "easing bias."
Traders are now pricing in about a 55% chance of a rate hike by April 2027, up from about 20% before the Fed announced its decision, based on aggregated probabilities published by CME Group, where futures that settle to the Fed's policy rate are traded.
Here is the context:
-
The Fed left its policy rate in the 3.50%-3.75% range at its April 28-29 meeting.
-
The decision drew dissents from Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari and Dallas Fed President Lorie Logan, who felt the Fed should no longer signal its next step would likely be a rate cut.
-
The Fed kept the "easing bias" language in its post-meeting statement, but Fed Chair Jerome Powell said that a change could conceivably be made as soon as June.
-
Earlier Wednesday rate-futures traders all but erased bets on a rate cut this year, and newly added small bets on a rate hike, after oil prices jumped on renewed worries of a prolonged U.S. blockade of Iranian ports. Traders now see additional risk the Fed will turn to rate increases in the first part of next year.
-
Wednesday's meeting was Powell's last as Fed chair. President Donald Trump regularly criticized him for not lowering rates.
-
Trump expects Kevin Warsh, his pick to succeed Powell on May 15, to deliver reductions. Warsh has said he did not promise Trump he would do so.
-
At Wednesday's meeting Trump's only other nominee during his second White House stint, Fed Governor Stephen Miran, dissented in favor of a rate cut, as he has at each meeting since beginning his job in September.
Source: tradingview