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MONEY MARKETS-Traders see Fed's next rate hike in September
March 15, 2017 / 8:39 PM / 6 months ago

MONEY MARKETS-Traders see Fed's next rate hike in September

* Fed’s latest statement, forecasts less hawkish than expected

* Futures imply traders pare June rate hike view below 50 pct (Updates market action after FOMC; adds quote, byline)

By Richard Leong

NEW YORK, March 15 (Reuters) - U.S. short-term interest rate futures rose on Wednesday after the Federal Reserve hinted it remained on a gradual pace in raising rates, leaving traders to speculate the U.S. central bank would next increase rates at its September policy meeting.

The Fed as expected raised U.S. rates by a quarter point to a range of 0.75 percent to 1.00 percent. Its latest policy statement and economic forecasts reduced concerns that it has turned aggressive on ending its easy monetary policy stance.

“They were less hawkish than what the market was anticipating,” said Ninh Chung, head of portfolio management at SVB Asset Management in San Francisco.

The Federal Open Market Committee, the Fed’s policy-setting group, met on Tuesday and Wednesday. It acknowledged further improvement in the economy since its preceding meeting.

“The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run,” the FOMC said.

Federal funds futures implied traders saw a 49 percent chance the Fed would raise rates again at its June 13-14 meeting versus 53 percent on Tuesday, CME Group’s FedWatch program showed.

They suggested traders expected the Fed’s next rate hike will most likely occur in September, where they priced in a 76 percent chance of such a move.

Traders saw a 55 percent chance of a second rate increase after Wednesday’s hike by the Fed’s December meeting, CME’s FedWatch program showed.

In the Treasury bill market, T-bill rates retreated from their highest levels since 2008 set earlier on Wednesday ahead of the FOMC statement and the reinstatement of the federal debt ceiling on Thursday.

With the government’s borrowing cap at just under $20 trillion, the Treasury Department said it will take steps to ensure it raises enough cash to meet its interest payments.

Earlier on Wednesday, interest rates on one-month T-bills reached 0.791 percent, the highest on an intraday basis since October 2008, Tradeweb data showed.

Three-month T-bill rates hit 0.787 percent, also the highest since October 2008, while six-month rates climbed to 0.937 percent, which was the highest since November 2008, according to EBS Brokertec data.

In late U.S. trading, one-month T-bill rates fell over 8 basis points on the day at 0.6825 percent; three-month rates declined 5.5 basis points at 0.715 percent and six-month rates decreased 5.5 basis points at 0.860 percent. (Additional reporting by Ann Saphir in San Francisco; Editing by Meredith Mazzilli)

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