Fed futures traders anticipate steady interest rate despite central bank's hike prediction

Despite the Federal Reserve's recent hint at a potential interest rate increase, futures traders are largely expecting the central bank to keep its current benchmark rate steady for the remainder of the year. The Fed's current target range for its rate is 5.25% to 5.5%, as reported on Wednesday.

The CME FedWatch Tool, which monitors traders' expectations, showed a 73.1% likelihood that the Federal Reserve would maintain its rate within the current range at its November policy meeting. This projection came after the central bank announced on Wednesday that it plans to keep its rate steady, while also considering one more hike before year-end in response to ongoing inflation.

Following the central bank's announcement, there was a slight increase in traders' expectations of a rate hike in November. The CME FedWatch Tool indicated a 26.1% chance of a quarter percentage point rise to a range of 5.5% to 5.75%, slightly higher than predictions prior to the release of the Fed's policy statement.

Expectations for a continued steady benchmark rate extend into December, although there is a higher probability of a quarter-point increase compared to November.

Federal Reserve Chair Jerome Powell stated on Wednesday that the full impact of their monetary tightening has not yet been fully realized. If economic conditions progress as anticipated, Powell suggested that the federal funds rate could reach 5.6% by year-end.

Looking beyond this year, the Federal Reserve's summary of economic projections indicated a downward trend in the fed-funds rate over the next few years. The median forecast predicts a decline from 5.1% at the end of 2024 to 3.9% by the end of 2025.

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