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Odds that the US Federal Reserve will raise interest rates in its June meeting jumped to nearly 94 per cent on Wednesday after central bank officials played down the recent spate of weak economic data and said the slowdown seen during the first quarter was “likely to be transitory.”
Fed fund futures, contracts that investors use to bet on interest rate movements, suggest that there is now a 94 per cent chance of a rate increase at the Fed’s June meeting, up from just 67 per cent ahead of today’s Fed decision, where the committee voted to hold the target range for the federal funds rate at 0.75 per cent to 1 per cent.
“Obviously no hike, no one was expecting there would be,” said Luke Bartholomew, strategist at Aberdeen Asset Management. “What’s interesting is how dismissive the Fed is of recent economic weakness, saying it’s temporary and the fundamentals remain strong. The outlook for interest rates really depend on whether that judgement is correct.”
Neil Wilson, senior market analyst added:
“If the Fed really is to hike in June, and market pricing suggests it is, we can expect various Fed officials to get wheeled out over the coming weeks to start talking up the prospect in order to smooth the path for the hike. The Fed is doing a very good job of pre-warning the markets under Yellen and they will have to talk up the growth prospects and show that the [first quarter] number was indeed transitory.”