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Market Sees Two Fed Hikes in 2018 for First Time in Nine Months

For the first time in 9 months, the market expects 2 Fed hikes in 2018.

Market Sees Two Fed Hikes in 2018 for First Time in Nine Months
An empty desk sits ahead of a news conference following a Federal Open Market Committee (FOMC) meeting in Washington, D.C., U.S. (Photographer: Andrew Harrer/Bloomberg)

(Bloomberg) -- On the eve of Janet Yellen’s second-last Federal Open Market Committee meeting as chair of the U.S. central bank, before handing over the reins to Jerome Powell, investors are showing the most confidence in nine months toward the prospect of higher interest rates next year.

The spread between January 2018 and January 2019 fed funds futures contract yields, a proxy for how many times rates will be raised next year, widened to half a percentage point on Tuesday for the first time since March, pricing two quarter-point increases. Back in September, investors weren’t even fully pricing a single hike.

Market Sees Two Fed Hikes in 2018 for First Time in Nine Months

Updated FOMC interest-rate projections to be released Wednesday will probably show the median participant on the 16-member committee still expects three quarter-point rate hikes next year, as in September. But there’s a chance that number could move up to four, depending on how optimistic policy makers are feeling about the outlook for economic growth and inflation.

To contact the reporter on this story: Matthew Boesler in New York at mboesler1@bloomberg.net.

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Alister Bull, Sarah McGregor

©2017 Bloomberg L.P.