(Reuters) - Traders of U.S. short-term interest-rate futures increased bets the Federal Reserve will raise rates again this year and next after the central bank on Wednesday increased its benchmark lending rate and dropped its longstanding pledge to stimulate the economy “for some time.”
Traders correctly foresaw the June rate hike, the central bank’s second this year, and had been quite confident of a rate hike in September. But on Wednesday they began pricing in a better than even chance of a December rate hike, up from a 37 percent chance seen before the Fed released its rate-hike decision.
That view was in line with fresh Fed forecasts that showed most of its policymakers believe at least four rate hikes would be appropriate this year.
“We’ve got the rate hike and we’ve got another two hikes this year being priced in on the dot plan,” said Amo Sahota, director at Klarity Fx in San Francisco. “It doesn’t necessarily mean the Fed will deliver it, but the market is responding to the news.”
Traders also began pricing in a higher chance of a slightly steeper path of rate hikes next year, futures prices showed, though the path indicated by the Fed’s forecasts stuck to the three rate hikes anticipated for 2019 based on Fed forecasts provided in March.
Reporting by Ann Saphir in San Francisco and Saqib Ahmed in New York; Editing by Chizu Nomiyama and Richard Chang