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Swap Traders Keep Pricing in Fed’s Next Interest Rate Hike

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It is reported that swap traders continue to price the expectation that the Federal Reserve may raise the policy interest rate by 25 basis points in the next t…

Swap Traders Keep Pricing in Fed’s Next Interest Rate Hike

It is reported that swap traders continue to price the expectation that the Federal Reserve may raise the policy interest rate by 25 basis points in the next three meetings. Traders expect the federal funds terminal interest rate to rise to about 5.4% in July from about 5.38% earlier.

Traders predict that the federal funds terminal interest rate is expected to rise to about 5.4% in July from about 5.38% before

Interpretation of the news:


Swap traders are optimistic about the possibility of a policy interest rate hike by the Federal Reserve in the next three meetings. According to reports, these traders have priced in the expectation of a 25 basis points increase in the interest rate. This indicates a continuing trend and reaffirms the Fed’s stance of raising interest rates gradually in response to rising inflation and a strong labor market.

The Federal Reserve targets the federal funds rate, which is the interest rate at which banks lend money to each other overnight, and this rate ultimately impacts consumer lending rates for credit cards, mortgages, and other loans. Swap traders seek to hedge or speculate on the direction of interest rates by exchanging cash flows with each other. Therefore, their pricing indicates market expectations of future interest rates.

In this scenario, swap traders believe that there is a strong possibility of the federal funds terminal interest rate rising to about 5.4% in July, a slight increase from the previous rate of about 5.38%. This expectation implies that the market believes that inflationary pressures will persist and that the Fed will continue increasing rates to keep inflation in check. The Fed has increased interest rates twice in 2018 and is expected to hike interest rates two more times this year.

The market pricing has also been influenced by other factors such as rising oil prices, global trade tensions, and geopolitical risks. These factors are expected to impact inflationary pressures, which have prompted the Fed to increase interest rates.

In conclusion, swap traders continue to be vigilant in their pricing and believe that the Federal Reserve may raise interest rates in the near future. However, it is essential to keep in mind that market expectations can change rapidly depending on economic data releases, geopolitical risks, or any other unforeseen event. The Fed has stated that it will be data-dependent in its approach to interest rate hikes, and therefore market pricing will continue to evolve based on incoming data.

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