Surging energy prices Monday helped add to sentiment that the Federal Reserve suddenly might not be in such a hurry to cut interest rates.
While markets still see the central bank lowering its benchmark overnight lending rate by a quarter point at this week’s Federal Open Market Committee meeting, the case for continued cuts seemingly has gotten weaker. Traders in the fed funds futures market on Monday were pricing in a 34% chance that the Fed will stay put on rates; the probability was zero a month ago and just 5.4% a week ago, according to the CME.
That came amid some changing economic trends as well as inflation pressures caused by a 14% jump in oil prices. Rising inflation makes the Fed more likely to tighten policy or at least hold the line rather than to cut rates.
Stronger economic data recently, featuring increases in consumer and business confidence as well as retail sales, has helped fuel some of the dovish sentiment. Some halting signs of easing tensions in the U.S.-China tariff battle also contributed.
“I can’t think of another time recently that the Fed had this much of an about-face within a month or a few weeks of their meeting date,” said Jim Paulsen, chief investment strategist at the Leuthold Group. “I still think they do 25 [basis points], but the case is weak.”
Reference: CNBC
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