Investors are betting less and less on the Fed lowering interest rates this year, according to evidence by the CME FedWatch. The FedWatch calculates the probabilities assigned to a range of target interest rates for all FOMC meetings. The euro has recently depreciated against the dollar, after the truce signed between US president Donald Trump and Chinese president Xi Jiping in an attempt to end the war on duties and after the better-than-expected data of the last jobs report.
For the next FOMC (July 31), investors attribute a zero probability that interest rates are in the current range of 225-250 bp, in line with the last week’s value, a probability of 93.0% they are in the range of 200-225 bp, up from 80.1% of the previous week, while the probabilities that they are in the range of 175-200 bp have dropped to 7.0% from 19.9% of the previous week.
For the sixth FOMC of the year (18 September), investors attribute a zero probability that rates are in the current range of 225-250 bp, in line with the value of last week, a probability equal to 32.9% they are in the range of 200-225 bp, up from 32.1% of the previous week, a probability of 62.6% they are in the range 175-200 bp, up from the 56.0% of the previous week and a probability of 4.5% they are in the range 150-175 bp, down from 11.9% of the previous week.
This week, the interval that records the highest modal value is that of 200-225 bp only for the next FOMC, while for all the others, the modal value is relative to lower intervals, even that of 150-175 bp for the first three of 2019. Investors do not expect, again, the FED keeps fed funds at the current level this year but the probability that interest rates will be cut, or that the monetary policy stance becomes more accommodating, has varied, with the probability distribution shifting to a more hawkish stance.