As investors wait anxiously for any hint of guidance on the interest rate outlook from Federal Reserve Chair Jerome Powell on Friday, they have been increasingly positioning for the central bank to deliver another interest rate hike by year end.
Interest rate futures tied to the Fed policy rate have shifted notably over the last few weeks, the CME Group's FedWatch tool shows, and now reflect about 50/50 odds of a quarter-percentage point increase to a range of 5.50% to 5.75% at either the Oct. 31-Nov. 1 meeting or the final meeting of the year on Dec. 12-13.
Powell is set to deliver the keynote speech on Friday morning at the annual economic symposium hosted by the Federal Reserve Bank of Kansas City held in Jackson Hole, Wyoming. Powell has often come to Jackson Hole with a mission, but with markets now generally aligned with the Fed's outlook for an extended period of tight credit to bring inflation to heel, he may opt for a message that looks to avoid trouble.
A recent backup in Treasury yields may help buttress the Fed's efforts to weaken demand and slow the momentum of an economy that has so far mostly shaken off the most aggressive monetary tightening in more than a generation.
The Fed has jacked up its policy rate from near zero in March 2022 to the current range of 5.25% to 5.50%, but unemployment remains at a historically low 3.5% and overall economic growth has defied expectations that it would falter.
Alongside the rise in bond yields, rate futures have notably repriced as well. While expectations remain firmly in place for the Fed to stand pat at its next meeting on Sept. 19-20, the shift in rate futures now put an increase at either of the final two meetings of the year squarely in play.
(Reporting By Dan Burns; Editing by Chizu Nomiyama)
