Traders Bet Fed’s Rate Hike Is Over, Cuts Will Begin in 2024 By Reuters

Written by Ann Saffer

(Reuters) – Federal Reserve policymakers are unlikely to raise interest rates again in 2023 and will likely start cutting rates early next year, dealers bet on Thursday, after a US government report showed that consumer prices rose significantly. moderate last month.

Futures traders pegged to the Fed’s policy rate now see a less than 10% chance that the US central bank will raise its key overnight rate from its current range of 5.25%-5.50% at the September 19-20 policy meeting.

They saw about a 14% chance of a rate hike next month before a Labor Department report showed July’s consumer price index (CPI) rose 3.2% from a year ago, after a 3% year-over-year increase in June.

Traders are pricing in a 28% chance of a rate hike by November, down from more than 30% before the release of the CPI report, with a rate hike by December considered less likely. The first Fed rate cut is priced into futures by March 2024.

The Fed has raised its policy rate up by 5.25 percentage points since March 2022 to bring inflation back to the 2% target. Analysts said July’s slight acceleration in year-over-year consumer price inflation — its first in 13 months — was an arithmetic result of last year’s 40-year CPI peak of 9%, rather than an indication of worsening underlying trends.

“Assuming the August print is somewhere in this vicinity… I think that pretty much ends the rate hike cycle,” said Jay Lepas, chief fixed income analyst at Janney Montgomery Scott. “There is always a chance of a re-acceleration of inflation editions after October, but I don’t think that will spur the Fed into action.”