Fed will not hike rates until September 2015, traders bet

Reuters

By Ann Saphir

(Reuters) - Futures traders are betting the Federal Reserve will wait until September 2015 before raising interest rates, after Fed Chairman Ben Bernanke offered new assurances that rates will stay near zero for the long haul.

The Fed, which on Wednesday reduced its monthly rate of bond purchases to $75 billion from $85 billion, also promised to keep rates near zero until "well past the time" that the jobless rate falls below 6.5 percent.

"I do want to reiterate this is not intended to be a tightening," Bernanke said in a news conference. "The actions today are intended to keep the level of accommodation the same overall and to push the economy forward."

Fed funds futures contracts gained as the message on rates sank in.

Prices of the contracts, tied to the Fed's policy rate target, rise when traders see the Fed taking more time before raising rates.

Futures prices now suggest the Fed will raise rates no earlier than September 2015, giving the probability of an increase in that month about 58 percent, according to CME Group's Fed Watch, which generates probabilities based on the price of Fed funds futures traded at the Chicago Board of Trade.

Before the Fed statement, traders were giving about a 57 percent probability of a July 2015 interest-rate increase.

(Reporting by Ann Saphir; Editing by Chizu Nomiyama and Dan Grebler)

View Comments (17)