Fed-funds futures traders were pricing in a decent chance that the Federal Reserve will leave rates unchanged in the current 3.75% to 4% range in December, upsetting expectations for a series of rate cuts.
“A December rate cut is not a foregone conclusion. That was a big surprise,” said Van Hesser, chief strategist for the global rating agency KBRA, in a phone interview. “There are risks to the upside on inflation and risks to the downside on employment and we are caught between the two. So I think obviously the market is aware of that dichotomy. We come out of all this where we started: There is significant uncertainty out there on what the future looks like.”
The likelihood of no action in December was at 31% on Thursday, close to where it was on Wednesday after Fed Chair Jerome Powell pushed back against rate-cut expectations for that month, according to the CME FedWatch Tool. Meanwhile, the likelihood of a quarter-point rate cut in the final month of the year was at 69% versus 66.6% a day ago.
