Probabilities of Federal Reserve’s Interest Rate Changes in May and June

According to reports, according to CME’s “Federal Reserve Observation”, the probability of the Federal Reserve maintaining interest rates unchanged in May is 18.4%, and the probability of raising interest rates by 25 basis points is 81.6%; The probability of maintaining interest rates at the current level by June is 13.1%, the probability of a cumulative 25 basis point increase is 63.3%, and the probability of a cumulative 50 basis point increase is 23.6%.

CME “Federal Reserve Observation”: The probability of the Federal Reserve raising interest rates by 25 basis points in May is 81.6%

Introduction

The Federal Reserve of the United States is the central banking system which is responsible for the smooth functioning of the country’s economy. It is also known as the “lender of last resort,” which regulates the supply of money and the level of interest rates in the economy. Recently, the Federal Reserve Observation report by CME suggests some interesting results illustrating the probability of maintaining or raising interest rates for May and June.

Factors Impacting the Federal Reserve’s Decision

The Federal Reserve’s decisions are based on multiple economic factors that steer the economy towards stability. These factors include inflation, unemployment, GDP growth rate, and consumer behavior. In the current situation, the global pandemic has impacted almost every aspect of life, including the economy.

Current Probability of Interest Rate Changes

According to CME’s Federal Reserve Observation reports, the Federal Reserve’s probability of not changing the interest rates in May is 18.4%. The report suggests that there is an 81.6% chance of the Federal Reserve raising the interest rates by 25 basis points.
For June, the probability of maintaining the interest rates at the current level is 13.1%, whereas there is a 63.3% chance of a cumulative 25 basis point increase. Furthermore, there is a 23.6% probability of a cumulative 50 basis point increase in the Federal Reserve’s interest rate.

Why is the Federal Reserve Raising Interest Rates?

The Federal Reserve raises interest rates to maintain price stability and control inflation. By raising interest rates, the Federal Reserve makes it more expensive for businesses and individuals to borrow money. As a result, people tend to spend less and save more, leading to a decrease in the money supply in the economy. This decrease ultimately decreases the demand for goods and services, resulting in a decline in inflation.

Predicted Outcomes of Interest Rate Changes

The Federal Reserve’s interest rate decision can have a significant impact on the market. The report suggests that if the Federal Reserve decides to increase the interest rates, it may lead to a decrease in the stock market, a decrease in mortgage refinancing, and costlier loans for businesses and individuals. However, if the Federal Reserve maintains the current interest rates, it may lead to a positive impact on the stock market, an increase in mortgage refinancing, and lower interest rates for loans.

Conclusion

The Federal Reserve’s decision to maintain or increase interest rates holds an immense impact on the country’s economy. While the circumstances are still unclear, it is necessary to keep an eye on these probabilities to stay ahead of the game.

FAQs

1. What is the Federal Reserve, and what does it do?
– The Federal Reserve is the central banking system of the United States, responsible for regulating the supply of money and controlling the interest rates in the market.
2. Why does the Federal Reserve change the interest rates?
– The Federal Reserve raises interest rates to maintain price stability and control inflation.
3. How will the Federal Reserve’s decision impact the market?
– The decision holds immense power as an increase or maintenance of interest rates can impact the stock market, mortgage refinancing, and costlier loans for businesses and individuals.