Market odds of 3 US rate rises in 2017 drop below 50%

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Trump tantrum?

The probability that the Federal Reserve will raise rates two more times this year has dropped back to below 50 per cent as investors temper expectations that President Donald Trump will be able to deliver on his pro-business reforms following the administration’s failure to repeal Obamacare last week.

Federal funds futures are currently pointing to a 49 per cent chance that the Fed will be able to meet its forecasts for three rate increases this year, according to Bloomberg calculations.

That is down from 51.75 per cent on Friday and a high of 60 per cent just two weeks earlier.

Odds of three rate rises this year first climbed above the 50 per cent threshold on March 1, a day after New York Fed head William Dudley said the case for adding to the December 2016 rate increase had become “a lot more compelling”.

They have stayed comfortably above that level even after the Fed’s so-called ‘dovish hike’ earlier this month – when it wrongfooted those in the market who were expecting a faster pace of rate increase by sticking to its forecast for three rate increases this year.

That is largely because investors continued to bet that Mr Trump’s proposed tax cuts and fiscal stimulus would send the US economy into overdrive. But those bets are now being questioned after the White House failed to unify Republicans around plans to repeal and replace Obamacare on Friday, with stock markets selling off and investors scrambling for the safety of bonds and gold.

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