Risk of 2025 rate hike emerges in one part of the market
There is one part of the interest-rate market that saw the chances of a 2025 rate hike growing over much of this week, or since last Friday’s surprisingly strong nonfarm payrolls report for December came out.
It is in options on the Secured Overnight Financing Rate, which replaced Libor. Implied probabilities based on these options suggested that there was an up to 30% possibility the Federal Reserve will need to raise interest rates this year, according to strategists at TD Securities. As of Friday, that likelihood had slipped to 19%.
“The bar for rate hikes remains very high, in our view,” the strategists wrote this week. They said that as long as inflation resumes its gradual downtrend toward the 2% objective, “the Fed will maintain an easing bias.”