Traders of U.S. interest-rate futures are no longer certain that the Federal Reserve will raise rates even once more next year.
The central bank has raised the federal funds target range eight times since December 2015, and is still expected to increase it again on Dec. 19. But the market-implied expectation for next year edged below a quarter point last week, and has crumbled this week amid a slide in global equities and U.S.-China trade tension. Policy makers’ latest set of forecasts, from September, anticipate three more increases in 2019.
In the eurodollar futures market, the rate gap between the contract that expires at the end of this year and the December 2019 contract narrowed to less than 15 basis points, indicative of eroding confidence in even a single 25 basis-point increase next year. Two months ago, the spread was about 60 basis points — pricing in a December 2018 increase and at least one more.
Some economists are also predicting Fed Chair Jerome Powell will become more cautious with policy normalization. Laurence Meyer of Monetary Policy Analytics, a former Fed governor, changed his call to two rate increases in 2019 from three, he said in a Nov. 30 note.
U.S. equity futures are tumbling Thursday alongside stocks in Europe and Asia as concern resurfaces that trade tensions between the world’s two largest economies are far from resolved. Oil slid as OPEC ministers met in Vienna.
