According to the latest fed funds futures market readings, the probability of a Fed rate increase this year has jumped markedly in just a matter of months. At the end of June the probability of rates being 25 basis points higher in December was just 9.2%. Yet today, despite the somewhat mixed economic reports and a major shift in the Fed’s thinking with respect to the longer-term trajectory of interest rates, inflation, employment, and output growth, this probability has increased to 47.3% today (52% earlier in the week). Following this week’s release of the last FOMC meeting minutes and in anticipation of Janet Yellen’s speech at next Friday’s Jackson Hole Symposium, in this Economics Weekly, we delve into what seems to be the current state of the Fed’s thinking and what are likely to be key topics of interest in the Fed chair’s upcoming speech.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.