(Reuters) – Traders on Thursday added to bets the Federal Reserve will keep policy on hold through this year and will begin interest rate cuts in mid-2024, despite a stronger-than-expected reading for third-quarter U.S. economic growth.
Futures that settle to the Fed’s policy rate in December showed traders now see about a 24% chance the Fed will raise its benchmark short-term interest rate by a quarter of a percent at its last meeting of the year, to a range of 5.5%-5.75%.
Before the report, which showed a surge in consumer spending drove growth in U.S. gross domestic product to an annualized 4.9% rate last quarter, the rate-future contracts had priced in about a 30% chance of an interest-rate hike this year. Economists polled by Reuters had expected a 4.3% GDP growth rate.
Other data published Thursday, though, suggested the kind of slowdown the Fed has been aiming for with its interest-rate hikes to date. Core inflation cooled to a 2.4% rate, from a previous pace of 3.7%, and the tally of workers continuing to claim unemployment insurance rose to its highest since May.
“Investors should not be surprised that the consumer was spending in the final months of the summer,” said LPL Financial’s Jeffrey Roach. “The real question is if the trend can continue in the coming quarters and we think not.”
(Reporting by Ann Saphir and Michael S. Derby; Editing by Andrew Cawthorne)
