CME Predicts Increasing Probability of Federal Reserve Raising Interest Rates

03/10/2023 13:41 • NFT Newsflash • 104 views

According to CME’s “Federal Reserve Observation”, the probability of the Federal Reserve raising interest rates by 25 basis points to 4.75% – 5.00% in March is 35.4%, and the probability of raising interest rates by 50 basis points to 5.00% – 5.25% is 64.6%; By May, the probability of a cumulative interest rate increase of 50 basis points is 28.7%, the probability of a cumulative interest rate increase of 75 basis points is 59.1%, and the probability of a cumulative interest rate increase of 100 basis points is 12.3%. (The same as before the announcement of non-agriculture)

After the announcement of non-agriculture: the probability of the Federal Reserve raising interest rate by 50BP in March is 64.6%, which is the same as before the data release

Analysis based on this information:

The CME Group’s “Federal Reserve Observation” has predicted an increasing likelihood of the Federal Reserve raising interest rates in the upcoming months. The probability of the Federal Reserve raising interest rates by 25 basis points in March is 35.4%, while the probability of a 50 basis points rate hike is 64.6%. This indicates that the economy is growing stronger and inflation is picking up, which is causing concerns for the Federal Reserve. This news highlights the Federal Reserve’s plan to normalize interest rates to prevent an overheating economy and runaway inflation.

The likelihood of a cumulative interest rate increase of 50 basis points by May is 28.7%, which means that the chance of an interest rate hike at the May meeting is increasingly possible. Additionally, the probability of a cumulative interest rate increase of 75 basis points is 59.1%, indicating a higher likelihood of a third interest rate hike sometime during the second quarter. However, the probability of a cumulative interest rate increase of 100 basis points by May is only 12.3%.

The Federal Reserve’s actions regarding interest rates have significant impacts on various aspects of the economy. Raising interest rates has a domino effect on various financial instruments. As interest rates increase, the cost of borrowing becomes more expensive, which results in lower demand for credit. In turn, the demand for various stocks may also decrease, causing markets to fluctuate, and lowering oil prices since increasing interest rates induce dollar appreciation. These cascading impacts must be monitored to ensure economic stability amidst inflationary pressures.

In conclusion, CME’s “Federal Reserve Observation” reveals an increasing possibility of an interest rate hike in the upcoming months, as the economy grows stronger and the inflation rate increases. The higher probability of interest rate hikes in the near future is a clear indication of the Federal Reserve’s efforts towards normalizing interest rates. However, the Federal Reserve must balance the interest rate hikes with economic stability, keeping in mind the cascading effects that rate increases could have on the stock market, housing, and other financial instruments.

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