Traders Hedge Against Fed Rate Hike Risk at Record Levels Ahead of July Decision
Traders have hedged against the risk of an unexpected Federal Reserve rate hike at record levels ahead of the July policy decision. Swap market pricing indicates about a one-third probability of a 25-basis-point increase. CME FedWatch data shows a 69.5% chance of no change and a 30.5% chance of a 25bp hike. For the September meeting, probabilities stand at 23.4% for no change, 56.4% for a cumulative 25bp hike, and 20.2% for a cumulative 50bp hike. Open interest in August federal funds futures hit a record 967,136 contracts.
The Federal Reserve will announce its interest rate decision early Thursday Beijing time. Market traders have hedged against the risk of an unexpected rate hike ahead of the decision, with related demand hitting a record high.
Pricing in the swaps market indicates about a one-third probability of a 25-basis-point rate increase. CME FedWatch data shows a 69.5% chance that the Fed will keep rates unchanged in July and a 30.5% chance of a cumulative 25-basis-point hike. For the September meeting, the probability of no change is 23.4%, a cumulative 25-basis-point hike is 56.4%, and a cumulative 50-basis-point hike is 20.2%.
Open interest in the August federal funds futures contract broke the record set by the October 2024 contract last Friday, reaching 909,714 contracts. Data on Monday showed that figure further increased to 967,136 contracts. Since taking office, Woshi has pledged to restructure the Fed's communication mechanism, no longer revealing policy inclinations in advance, while committing to restoring price stability. At last month's post-meeting press conference, Woshi declined to give clear guidance on the direction of interest rates in the coming months.