(Updates probabilities, adds background)
By Ann Saphir
SAN FRANCISCO Dec 14 Traders of U.S. short-term
interest rate futures are pricing in a faster pace of Federal
Reserve interest rate hikes next year after policymakers raised
their benchmark rate and signaled they expect to raise it three
more times next year.
It is a moment of rare agreement between rate traders and
the Fed, which for the past year have diverged on how fast the
central bank would raise rates as the economic recovery
The Fed repeatedly anticipated a faster pace of rate hikes
than markets did, and than it ultimately delivered. Last
December, for instance, Fed officials had signaled they expected
to raise rates four times in 2016; they managed to hike rates
Meanwhile, traders consistently bet on a more gradual path
of rates hikes, and Fed officials had to repeatedly lower their
expected rate hike path, putting their forecasts more in line
On Wednesday, the tables turned.
Fresh Fed forecasts show policymakers now see three rate
hikes in 2017 as the appropriate path, up from the two they
expected back in September. Traders reacted quickly, sending
down the price of fed funds futures contracts traded at CME
Group Inc's Chicago Board of Trade.
Before the Fed decision at the conclusion of a two-day
policy meeting, traders were pricing in one to two rate hikes
next year. Now they see three rate hikes as likely, the same
path seen by the Fed.
(Reporting by Ann Saphir; Editing by G Crosse and Leslie Adler)