October is a long shot, but Wall Street isn’t ruling it out.
Traders and investors have been betting for months that the Federal Reserve will raise interest rates in September or December. While October is the only other meeting on the 2015 calendar, it wasn’t part of the conversation. That’s mainly because there’s no press conference scheduled along with the central bank’s interest-rate decision Oct. 28.
Now that’s changing for some analysts after the recent financial-market turmoil. September may be too soon, and December is problematic in the eyes of some investors because liquidity in financial markets tends to dry up at that time of year. That puts October on the radar screen.
“We have to look at it more seriously,” said David Keeble, the New York-based head of fixed-income strategy at Credit Agricole SA. “You really want to be moving a little bit before December, otherwise your credibility starts to disappear,” said Keeble, who’s still projecting the Fed will boost its target next month for the first time since 2006.
The Fed has been signaling for months that it would raise interest rates this year, after holding its target near zero since 2008. The market was buying into that message until global equity markets lost more than $5 trillion of value in less than two weeks on expectations of slowing economic growth.
“An off-cycle hike in October is a possibility if September is too soon because of market jitters,” said Greg Anderson, Bank of Montreal’s global head of foreign-exchange strategy.
Traders are pricing in a 28 percent probability that the Fed will raise its target next month, based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase. The probability of a move at or before the October meeting rises to 37 percent, and jumps to 52 percent by the December gathering.
Less than three weeks ago, traders saw a 77 percent chance that the Fed would have moved by the December meeting.
For more, read this QuickTake: The Fed’s Countdown
The yield on the 10-year Treasury is on pace for a second straight monthly decline as demand for fixed income securities soared amid the global sell-off in equities, and on concern that slowing inflation will delay a Fed increase.
Developed-nation sovereign bonds are headed for a monthly gain. The Bloomberg Global Developed Sovereign Bond Index has returned 1.8 percent in August, paring its 2015 decline to 1.2 percent.
Fed Chair Janet Yellen holds press conferences after every other Federal Open Market Committee meeting.
Some traders see the lack of an October press conference as a dealbreaker. Yet Yellen has indicated that rate decisions wouldn’t depend on when press conferences are scheduled.