Go ahead, Federal Reserve, keep trying to prepare markets for an interest-rate increase this year.
It isn’t working.
The longer U.S. central bankers wait to initiate their tightening cycle, the more traders push back their expectations for when borrowing costs will start rising. On Thursday, futures contracts were implying that traders saw the fed funds rate at about 0.3 percent rate by December. That’s the lowest estimate of the year, and about half the forecast for the overnight lending benchmark that the Fed gave in March.
“In the end, the Fed is more likely to ‘cave’ to the market as opposed to ‘fight it’ by hiking when the market does not have it priced in,” Jim Bianco, president of Bianco Research LLC, said in an e-mail. The Fed still sees low rates “as beneficial and does not want to undermine all the work they have done over the past several years.”
In the meantime, Fed members are amping up their rhetoric that yes, a rate hike is coming, yes, it’ll probably be this year, and no, it may not be an easy ride for markets.
Liftoff “feels most probable somewhere in the late summer than the early summer, but early summer is not out of the question,” David Altig, research head at the Federal Reserve Bank of Atlanta, said in an interview in Madrid on Wednesday.