September interest-rate rise looking less likely

Otmane El Rhazi from The Bullion Desk.

The run of weak US macroeconomic data has taken a June rise in interest rates by the Federal Reserve off the table and even a change in September now looks unlikely, according to the CME Group’s FedWatch.

The members of the Fed’s policy board are locked in what has become an increasingly public debate on when will be the right time to raise interest rates, which have been near zero since December 2008.

The Federal Open Market Committee will meet next Tuesday and Wednesday and, according to FedWatch, there is a zero-percent chance that the central bank will adjust rates. This should not be surprising given some high-profile headline misses recently, such as the US gaining only 126,000 jobs in March.

The CME Group FedWatch is based on 30-Day Fed Funds futures prices, which have long been used to express the market’s views on the likelihood of changes in US monetary policy.

The odds are not much better for June, where the futures market only indicates a four-percent chance of rates rising to 0.5 percent from 0-0.25 percent currently, according to CME data. 

September, meanwhile, is now starting to come more in focus. There is a 28-percent probability that a rate increase will happen that month, down from 38 percent when this September figure was released last month.

October now appears to be the key pivot month – there is a 45-percent chance that the Fed will rate rates then; however, this is down from the forecast of 57 percent made last month.

The odds for a December rate increase now stand at 57 percent, followed by 72 percent in January 2016 and 80 percent in March 2016.

Further delays in raising interest rate could have dramatic impact on commodity prices – precious and base metals prices generally benefit from loose monetary policy and central bank stimulus.

Gold for June delivery on the Comex division of the New York Mercantile Exchange was last at $1,177.10 per ounce, down $17.20, while the most-actively traded Comex copper contract was at $2.7505 per pound, up 4.85 cents.

 (Editing by Mark Shaw)

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