August 22, 2018 / 7:17 PM / a month ago

TREASURIES-Fed minutes boost expectations of two more 2018 rate hikes

(Recasts with Fed minutes, adds quote, updates prices)

* Odds of December rate hike rise after minutes

* U.S. political uncertainty prompts safety buying

* Trade tensions

By Karen Brettell

NEW YORK, Aug 22 (Reuters) - Futures traders priced in a slightly higher chance that the Federal Reserve will increase interest rates two more times this year, after minutes from its latest meeting showed that U.S. central bankers discussed raising interest rates soon to counter excessive economic strength.

“Many participants suggested that if incoming data continued to support their current economic outlook, it would likely soon be appropriate to take another step in removing policy accommodation,” according to the minutes.

The U.S. central bank is widely expected to raise rates at its September meeting though there is some doubt about whether an additional rate hike in December is also likely.

“The market’s already fairly well priced for a December hike, I think they are just trying to gauge if there has been any shift in sentiment at the Fed and it certainly doesn’t seem that way at the moment,” said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York.

The odds of a September hike rose to 96 percent after the minutes, from 94 percent on Tuesday, while expectations of a December rate rise increased to 66 percent, up from 61 percent, according to the CME Group’s FedWatch Tool.

Fed Chairman Jerome Powell’s speech on Friday at the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming will be next watched for further indications of monetary policy.

Benchmark 10-year notes were little changed after the minutes to yield 2.823 percent, after earlier falling to 2.808 percent, the lowest since July 6.

The yield curve between 2-year and 10-year notes flattened to 22 basis points, the flattest since 2007.

Bonds were bid earlier on Wednesday as investors weighed how a guilty plea by Donald Trump’s former personal lawyer and the criminal conviction of his former campaign manager will affect his presidency.

Former Trump lawyer Michael Cohen, who pleaded guilty to a range of charges on Tuesday, testified that Trump had directed him to commit a crime before the 2016 presidential election by arranging payments to silence two women who said they had affairs with the New York businessman.

On the same day, a federal jury convicted former campaign manager Paul Manafort on tax and fraud charges resulting from U.S. Special Counsel Robert Mueller’s investigation.

Trade tensions also contributed to safety buying.

Fed members examined how global trade disputes could batter businesses and households, the meeting minutes showed. (Reporting by Karen Brettell, editing by Jonathan Oatis and Chizu Nomiyama) )

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