Nomura says September rate rise would be most pacifist in history
BEIJING: Traders say it's a coin toss whether the Federal Reserve raises interest rates from near zero next month. They're more sure policy makers won't be in any hurry once they get started.
Futures prices show 48 percent odds the Fed hikes in September, even as plunging commodity prices drag down inflation expectations and China's currency devaluation signals a slowdown in global growth. An imminent Fed rate rise amid broader uncertainty shifts scrutiny to the pace of subsequent increases. Officials have repeatedly lowered their own projections, known as the dot plot, for how quickly and how high rates will go. "If they go in September, it will be the most dovish hike they have ever administered," said George Goncalves , head of interestrate strategy at Nomura Holdings Inc., one of 22 primary dealers that trade directly with the Fed.
"They will lower the dots and they will say this is really just operational to get off of zero." The Fed's overnight rate is not expected to reach 1 percent until December 2016, according to futures prices, suggesting monetary policy will change at a gradual pace. That compares with policy makers' own median forecast of 1.625 percent at that date. Treasury 30year bond yields, which are linked to the longer-term outlook for growth and inflation, fell to 2.84 percent Friday in New York from 3.20 percent a month earlier.