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Traders are no longer waiting for the interest rate cut by the FRS this summer

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Traders are no longer waiting for the interest rate cut by the FRS this summer

Traders are no longer waiting for the interest rate cut by the FRS this summer
July 13
10:30 2016

Traders are no longer going to expect the possible decrease in the base interest rate by the Federal Reserve System (FRS) this summer. The fact is that the positive data on the USA labor market confirmed the market participants in the assumption of a further increase in the cost of lending.

According to the FedWatch tool of the exchange operator CME Group, on Wednesday market participants do not see any chances of the rate increase by 25 basis points in the current month. But in September the probability of the rate increase is rising to 17.8% and by the end of this year – to 33.5%. Immediately after the announcement of the referendum results about the UK leaving the EU, traders evaluated the chances of the rate cut by the FRS in September of nearly 20%.

Meanwhile, an economist from the Goldman Sachs Jan Hatsius predicts tightening of the monetary policy by the Federal Reserve System. The expert predicts the possibility of at least one rate increase before the end of the year of nearly 67%, in September – 25% that is higher than the market in general.

A month before the Goldman paid attention that the FRS had substantial grounds to stall for time because of the uncertainty caused by Brexit and conflicting macroeconomic data in the USA. “Now, the picture has been a bit cleared up”, – Hatsius said in an analytic note. He also added that if the markets anxiety vanished, the rate increase “could quickly become the agenda of the Federal Reserve System again”.

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