Markets dial back bets on Fed rate rises 2019

The extended market turbulence has led dealers to ratchet dramatically back bets on Federal Reserve interest rate rises over the impending years, with the biggest implied odds now on a protracted “pause” through 2019….

Fed funds futures, derivatives contracts investors used to speculate on interest rates, now show that there is a 63 percent chance the Fed still raises interest rates later this month — down from over 80 percent in mid-September — and growing prospects of a central bank “pause” through 2019. But the biggest reappraisal of Fed interest rate rises is for 2019, with more investors now deliberating whether the central bank will rest on its hands for most of the year.

Assuming policymakers follow through with a quarter-percentage point increase thereafter in December, Fed funds futures are pricing in approximately a 40 percent chance the central bank doesn’t touch interest rates again next year, and a 33 percent probability the Fed only lifts rates once.

Markets are estimating a bare 2 percent chance that the central bank raises rates by the three times it implied in September. Futures contracts indicate traders now foresee the Fed to cut interest rates further in 2020.