Its A Coin Flip Whether The Fed Will Raise Interest Rates In July by Eric Bush, CFA – Gavekal Capital Blog
The odds that the Fed will raise interest rates soon is once again on the rise. The implied odds, according to Bloomberg, that the Fed increases the Fed Funds target rate to 0.5%-0.75% in April has increased to 21.4%. This is a significant increase from the minuscule 1.5% odds the market was placing on this outcome just three short weeks ago. The odds increase to 38.2% the Fed moves the target rate up to 0.5%-0.75% at the June meeting and 39.1% at the July meeting. Overall, the market places a 45.9% chance in June and a 49.1% chance in July that there will be an increase in rates of some kind during these meetings. In essence, the implied odds suggest there is a about a 50% chance the target rate is between 0.25-0.5% by July and a 50% chance the target rate is somewhere between 0.5%-1% by July. In the graphics below, we show the latest implied odds for all Fed meeting until February 2017 as well as the historical chart of the odds the Fed increases the target rate to 0.5%-0.75% in April, June and July.