Investing.com - Federal fund futures increased the odds for a third rate hike by the U.S. central bank being pulled forward to the September meeting after current Fed chairman Jerome Powell gave an upbeat outlook on the economy on Tuesday and said that the outlook has improved since December.
In prepared semi-annual monetary policy testimony to the House Financial Services Committee, Powell had indicated that “some of the headwinds the U.S. economy faced in previous years have turned into tailwinds.”
In his appearance before the congressional committee, he was asked what it would take to speed up the process of rate hikes beyond the current three hikes projected by policymakers.
Powell reminded the congressional committee that the latest forecasts were from December and that the new projections would be presented after the March 20-21 meeting.
“My personal outlook for the economy has strengthened since December,” the new Fed chief stated.
Powell did make clear that he could not predict how other policymakers might have adjusted their outlook. “I wouldn’t want to prejudge that new set of projections,” he explained.
Although markets left bets for the next hike coming in March at roughly the same levels, 87.4%, according to Investing.com’s Fed Rate Monitor Tool, they pushed bets for a second hike in June to roughly 72% from around 68% ahead of the release of Powell’s prepared testimony.
Notably, Fed fund futures reacted to the upside after the remarks with the odds for a third rate hike in September moving past the 50% threshold to approximately 52%, compared to the just 46% early this morning.
Markets were still reticent to factor in a fourth hike by December, leaving the odds at around just 38%, compared to approximately 27% earlier Tuesday morning.
As far as the rate increase happening in the final month of 2018, odds had increased to approximately 77%, from 64% prior to the testimony.