We Have a Situation

With the release of the minutes for the April 26-27 Federal Open Market Committee (FOMC) meeting, the Federal Reserve floated a trial balloon about possibly raising the target range for the fed funds rate at its June 14-15 FOMC meeting. Well, that trial balloon got popped by the Employment Situation Report for May, which created quite a situation for the capital markets.
Probably Not
To be fair, there wasn’t a lot of conviction ahead of the report in the idea that the Fed was going to raise the fed funds rate in June.
Prior to the release of the Employment Situation Report for May, the fed funds futures market placed only a 19% probability of a rate hike at the June meeting. The probability of a rate hike at the July 26-27 FOMC meeting, however, stood at 59%.
In the wake of the aforementioned report, the probability of a rate hike in June has been reduced to just 6% while the probability of a rate hike in July has been slashed to 35%.
While we’re at it, we might as well note that the probability of a rate hike at the September meeting has been cut to 51% from 66% and that the probability of a rate hike at the November meeting has dropped to 54% from 68%.

This post was published at FinancialSense on 06/06/2016.