- Bar to U.S. Fed rate hike this week remains high even as markets see a chance.
- U.S. rate futures on Monday priced in a 36 per cent chance of a hike this week, up from 16 per cent a week earlier, while showing 43 basis points of increases by the end of 2026.
- Bond investors are heading into this week’s Federal Reserve policy meeting cautiously positioned as inflation uncertainty clouds the outlook for interest rates, favoring high-quality assets and avoiding large directional bets.
- Most investors expect the Fed to leave benchmark rates unchanged in the 3.50-per-cent-3.75-per-cent range at the end of a two-day meeting on Wednesday.
- JPMorgan’s latest Treasury Client Survey showed little change in investor positioning from a week earlier, with long, short and neutral positions all remaining near their four-week averages.
- Eric Winograd, chief U.S. economist at AllianceBernstein, said his firm does not expect further rate hikes, arguing that recent inflation data which came in softer than expected and a stable labor market have reduced the need for additional tightening.
- Winograd noted that the last inflation print was benign, the labor market looks stable, and much of the recent inflation is driven by higher energy prices a classic supply shock that monetary policy can’t really address.
Bond investors are approaching this week’s Federal Reserve policy meeting with caution, as inflation uncertainties loom large. The latest data shows a 36% chance of a rate hike priced in, a significant increase from the previous week’s 16%.
Most analysts anticipate that the Fed will maintain the benchmark rates in the 3.50%-3.75% range, reflecting a cautious outlook amid ongoing economic pressures. U.S. consumer inflation slowed to 3.5% in June, yet it remains above the Fed’s 2% target, compounded by escalating tensions in the Middle East that could drive oil prices higher.
According to JPMorgan’s latest Treasury Client Survey, investor positioning has shown little change, with long, short, and neutral positions remaining near their four-week averages. Eric Winograd, chief U.S. economist at AllianceBernstein, noted that recent inflation data has been softer than expected, suggesting that the need for further rate hikes is diminished. He stated, “The last inflation print was benign, the labor market looks stable, and much of the recent inflation is driven by higher energy prices — a classic supply shock that monetary policy can’t really address.”7
As the market awaits the Fed's decision, the cautious sentiment among bond investors highlights the delicate balance the central bank must navigate in its monetary policy approach.
“Most investors expect the Fed to keep benchmark rates unchanged in the 3.50%-3.75% range at the end of the two-day meeting on Wednesday. Eric Winograd, chief U.S. economist at AllianceBernstein, noted that recent inflation data has been softer than expected, reducing the need for further rate hikes.”
The Globe and Mail
