Rate futures market says the Fed is anything but done with hiking

(Reuters) – The Federal Reserve has finished raising US interest rates.

FILE PHOTO: A cyclist crosses the Federal Reserve building in Washington, DC, USA August 22, 201[ads1]8. REUTERS / Chris Wattie / File Photo

It is the message that comes from the interest rate futures market that Monday's full flight from risk-based funds ran traders to praise almost any prospect for further interest rate increases from the Fed, which raised prices again just last week.

Shares fell sharply on Monday with concern to slow down economic growth, the government shuts down and reports that President Donald Trump, increasingly angry at US central bank interest rate hikes, had been discussing shooting Fed Chairman Jerome Powell. Trump on Monday marked the Fed as the "only issue" for the US economy, and Secretary of State Steven Mnuchin made unsuccessful efforts to reassure investors' concerns over Wall Street's depletion.

The federal fund fund contract expiring in January 2020 FFF0, as closely as a measure of where Fed's overnight lending rate benchmark will be at the end of next year, increased 10.5 basis points in price on Monday.

Who left the contract with an implied return, moving in the opposite direction of its price, of 2.41 percent, entirely within the current range of Fed target rates.

The Fed last week increased interest rates by a quarter percentage point for the fourth time this year to a range of 2.25 percent to 2.50 percent. The daily feed funds effective rate settled at 2.40 percent on Friday.

In connection with the interest rate increase, Fed officials released their individual forecasts for the level at which federal fund prices end 2019, with the median projection among the 17 policy makers targeting two more rate hikes next year, to a range of 2.75 percent 3 percent.

The projections for further tensions, along with indications that the Fed will not come from a related effort to recover its large holdings of government bonds and mortgage-backed securities, helped increase the stock of both the stock and corporate markets.

The benchmark index S & P 500 Index .SPX is now on the doorstep to demarcate a stock market for stocks, about 19.8 percent from record highs in September, and corporate bond indices are also falling.

Rate futures last week for the first time began to price the option for the Fed reversal course on its price rise regime starting in 2020. However, at that time, the market still reflected a modest likelihood that the Fed would increase in 2019. The prospect now looks completely gone.

Reporting Dan Burns; Editing by Dan Grebler

Our Standards: Thomson Reuters Trust Principles.

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