Traders' interest-rate expectations for 2023 little changed despite Fed's projections

By Christine Idzelis

Fed released on Wednesday projections for its benchmark interest rate

Federal-funds futures are still indicating that traders expect the Federal Reserve will keep its benchmark interest rate at the current level this year, even as the Fed's projections released Wednesday showed one more rate hike may be coming.

Traders see a 73.1% probability that the Fed may keep its rate at the current target range of 5.25% to 5.5% at its next policy meeting in November, according to the CME FedWatch Tool, at last check.

The Fed announced on Wednesday that it's holding its rate steady at that level while penciling in potentially one more rate hike by then end of this year in an effort to stomp out still high inflation.

"We have covered a lot of ground, and the full effects of our tightening have yet to be felt," said Fed Chair Jerome Powell, in an opening statement at his press conference on Wednesday. "If the economy evolves as projected, the median participant projects that the appropriate level of the federal funds rate will be" 5.6% at the end of this year, he said.

Meanwhile, fed-funds futures showed a 26.1% chance the central bank could hike rates by a quarter percentage point in November to a range of 5.5% to 5.75%, a slightly higher probability compared with shortly before the Fed released its policy statement, according to the CME FedWatch Tool.

Similarly, most traders still expect the Fed will maintain its benchmark rate at the current level in December, although the probability of a quarter-point hike was higher compared with chances in November.

Looking further out, the Fed's summary of economic projections showed the median participant forecast the fed-funds rate to end 2024 at 5.1% and then decline to 3.9% at the end of 2025.

Read: 'Growing confidence in a soft landing'? Here's where traders see Fed's interest rate going in 2024

-Christine Idzelis

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09-20-23 1554ET

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