Markets expect next Fed rate hike in June 2017

When can we expect the next Fed rate hike? Markets are anticipating next interest rates raise in June 2017 with 78 percent chance.

15 December, AtoZForex The Federal Reserve (Fed) has decided to raise the interest rates by quarter percentage on Wednesday from 0.50% to 0.75%. Moreover, the Federal Open Market Committee (FOMC) has changed its economic outlook, shifting from 2 rate hikes to 3 in 2017.

When will we witness the next Fed rate hike?

Following such verdict from Fed, traders have increased their bets on a June 2017 interest rate hike. The CME Group FedWatch indicated a 78 percent chance of a June rate hike in the wake of Fed rate hike announcement. Prior to the news, the chance for June rate hike was recorded at 57.7 percent.

The head of equity trading, US, at RBC Global Asset Management, Ryan Larson, stated that June “probably makes sense” for the next rate hike. He added:

“It will probably take a couple months for the new administration to do the things they’ve been talking about regarding fiscal stimulus.”

What are the markets’ views on the next Fed rate hike?

Traders broadly consider thirty-day Fed funds futures prices as a reliable estimate of the US monetary policy shifts. CME Group FedWatch tool monitors the target rates based on Fed funds futures contract prices. A reading above 50 percent signals the market’s estimate for the next rate raise. Ahead of yesterday’s announcement, the market assessed that the Federal Funds rate would be higher than its current level across all months tracked by the FedWatch tool.

However, after the official announcement, chances increased the most for the second half of the next year. The readings came at:

February: 6 percent, up from 5 percent prior to the announcement.

March: 26.8 percent, up from 15.7 percent

May: 37.7 percent, up from 26.3 percent

June: 78 percent, up from 57.7 percent

July: 81.9 percent, up from 63.1 percent

September: 89.7 percent, up from 73.3 percent

November: 91.5 percent, up from 75.9 percent

December: 96.4 percent

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