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(CEP News) -Fed funds futures are now pricing in a 94% chance that the Fed will not raise rates at the next meeting scheduled for Sept. 16 on a day that saw a higher-than-expected U.S. jobless claims report along with San Francisco Fed President Janet Yellen's comments that a rate cut is possible but unlikely.
Speaking on monetary policy, Yellen said the Fed "can afford to be patient" right now. She said further easing would be unlikely but cannot be ruled out and that the FOMC must be "open minded" about the next rate decision. Markets are currently pricing in a 94% chance that the Federal Reserve will not change rates for the Oct. 16 meeting. This is an increase from yesterday's 88.3% expectation that the Fed funds rate will remain at 2.00%. This is in sharp contrast from one month ago when the implied probability was factoring in a 43.6% chance that the fed would raise rates by 25 basis points. The rise in weekly initial jobless claims to 444k in the week ending Aug. 30 suggests fundamental weakness in the U.S. labour market, economists say, as the upward bias from new regulations making it easier to file for unemployment benefits should have only been temporary. Ian Lyngen, fixed income strategist at RBS Greenwich Capital, said the rise in weekly claims is "especially notable" because the upward impact from the new regulations was supposed to last only a few weeks. The fact that claims are even higher this week suggests that labour market conditions "may be worse than otherwise feared," he said. Looking to the year-end meeting scheduled for Dec. 16, markets are expecting an 80.3% chance that there will be no change in rates. Markets are now beginning to price in a 14.6% chance of a 25 bps rate cut for the year end meeting. By Steve Stecyk,
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, with contributions from By Patrick McGee,
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, edited by Megan Ainscow,
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