Based on Thursday’s U.S. government report revealing moderate growth in consumer prices last month, traders are speculating that Federal Reserve policymakers are unlikely to implement further interest rate hikes in 2023 and are more inclined to initiate rate cuts in the early months of the following year.

Those engaged in futures tied to the Fed’s policy rate are now assigning a probability of less than 10% for the U.S. central bank to raise its current benchmark overnight interest rate, which ranges from 5.25% to 5.50%, during the policy meeting scheduled for September 19-20.

This outlook has shifted from around a 14% likelihood of a rate increase next month prior to the Labor Department’s report, Reuters reported.

The report indicated that the Consumer Price Index (CPI) for July increased by 3.2% compared to the previous year, following a year-over-year rise of 3% in June.

Traders are currently factoring in approximately a 28% chance of a rate hike by November, down from the initial estimate of over 30% before the CPI report was published.

The anticipation of higher rates by December is considered even less probable. Futures contracts are indicating that the first rate cut by the Fed is expected to be priced in by March 2024.

Written by staff