Date
27 July 2017
Many economists predict the Federal Reserve will increase its target when policy makers gather on Sept. 16-17. Photo: Bloomberg
Many economists predict the Federal Reserve will increase its target when policy makers gather on Sept. 16-17. Photo: Bloomberg

Fed liftoff has futures and economists at odds for next week

Many economists are sticking to predictions the Federal Reserve will lift interest rates next week, but money-market derivative traders still need convincing.

Thirty-eight of 78 economists surveyed by Bloomberg predict the central bank will increase its target when policy makers gather on Sept. 16-17, after holding it close to zero since 2008 to support the economy.

However, the probability of such a move as gauged by federal funds futures contracts, a bellwether for traders for decades, is 28 percent, signaling fewer people in that market are buying the argument that a tightening is just days away, Bloomberg said.

“The reason for the low probabilities is that you have a fairly large subset of investors who are betting the Fed won’t move until next year,” said Aaron Kohli, a New York-based interest-rate strategist at BMO Capital Markets.

“This means there is one subset of investors that is probably really wrong,” he said. “That should mean you’ll get some sort of corrective move next week” if the Fed tightens.

Fed officials in recent weeks, while giving a nod to global events including the equity rout that followed China’s Aug. 11 currency devaluation, haven’t been willing to rule out a September hike.

Traders dabbling in debt with a bit longer maturity seem more prepared for the risk of a Fed move this year.

Two-year Treasury yields reached the highest since 2011 this week, and futures traders are pricing in close to a 40 percent chance of an October liftoff and about 60 percent for December, the news agency said.

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