Investing.com – Markets have pushed back expectations for the next round of policy tightening by the Federal Reserve (Fed) on the back of a string of data pointing to weak growth and inflation.
The latest employment report showed a weaker-than-expected jobs gain in March while retail sales declined for a second straight month.
At the same time, consumer prices dropped for the first time in just over a year while the annualized core reading eased to just 2.0%, in line with the Fed’s inflation target.
The readings caused both the Atlanta and New York Fed to cut estimates for first quarter gross domestic product to 0.5% and 2.09%, respectively, although the former regional bank may be pessimistic when compared to the consensus forecast of 2.1%.
Markets have reacted to the data and currently rule out the idea that the next Fed rate hike will arrive in June, according to Investing.com’s Fed Rate Monitor Tool.
In fact, Fed fund futures have pushed back policy tightening bets with odds standing at just under 50% for July and clocking in at a more “respectable” 60.3% for the September meeting.
Despite the fact that remarks from Fed officials have generally continued to back the official outlook of gradual tightening along with the median forecast for two more hikes this year, while several members have also insisted that balance sheet normalization should likely begin in 2017, the market has once again decided that the Fed will only move once this year with odds for a second rate hike in December standing at just under 28%.
However, market odds for further tightening are not set in stone as recent history shows. Fed officials had to pour on the hawkish rhetoric ahead of the last rate increase in March in order to convince markets to readjust their outlook and prepare for the move.
With the May meeting generally considered to be off the table by Fed officials for not complying with the definition of “gradual” and by markets that assume, rightly or not, that policymakers wouldn’t adjust interest rates at a meeting without a press conference, members of the U.S. central bank still have nearly two months before their June decision to convince markets that they remain on a hawkish path.
Stay up-to-date on market expectations for rate changes by the U.S. central bank with Investing.com’s Fed Rate Monitor Tool:
https://www.investing.com/central-banks/fed-rate-monitor