NEW YORK (Reuters) - U.S. interest rate futures on Wednesday have priced in a pause in Federal Reserve tightening at the June and July policy meetings, according to the CME's FedWatch tool, after the U.S. central bank raised interest rates by 25 basis points and signaled it may hold off on further increases.
The Fed's rate hike and the pause signal were expected. The U.S. central bank's benchmark overnight interest rate is now at the 5.00%-5.25% range.
In an overt shift, the Fed no longer says it "anticipates" further rates will be needed, only that it will watch incoming data to determine if more hikes "may be appropriate."
The fed futures market has also factored in a more than 70% chance of rate cuts at the September meeting.
"No other Fed has ever tightened policy this close to a possible debt default, and only once in 1984 did the Fed ever tighten into a financial crisis of any kind," said David Rosenberg, president and chief economist & strategist at Rosenberg Research.
He added though that then-Fed chairman Paul Volcker ended up reversing those rate hikes very quickly and substantially.
"That said, the pause likely becomes official at the next meeting on June 14th...The language shifted just enough to suggest that, going forward, the bar has been raised on any further rate increases," said Rosenberg.
The rate futures market expects about 50 to 75 bps in cuts this year, with traders looking at a fed funds rate at 4.33% by end-December, according to Refinitiv's FedWatch.