Bond Traders Reprice Rate Outlook as Growth Slips
Bond and money market traders around the world are reassessing the pace of interest rate tightening amid signs global growth is sputtering.
Traders were cutting back bets on Federal Reserve hikes in 2019 even before dovish remarks from Chairman Jerome Powell opened the door for a potential pullback next year. Minutes from the Fed’s meeting earlier this month also set the stage for more flexibility.
Central banks may have good reason to turn more dovish. The International Monetary Fund downgraded its forecast for world growth last month, and warned this week that the outlook may have gotten even worse. That’s been reflected in increasing financial market turbulence, with stocks sinking in the fourth quarter and credit spreads widening.
Meanwhile, falling oil prices are taming inflation expectations.
U.S. interest-rate pricing shows the market is expecting a 25 basis-point hike next month, and no more than one additional increase next year. That’s less than the consensus among analysts and below the Fed’s own forecasts.