Just about everyone predicted the Federal Reserve would cut interest rates on Wednesday. But the market no longer thinks so.
According to the CME’s FedWatch Tool, which measures what the markets are predicting the Fed will do next, the probability of a quarter percentage point rate cut is only 47%, down from 92% just a week ago.
Translation: The expectation on Wall Street is that the central bank will leave rates unchanged when it releases its policy statement.
An even more dramatic half percentage point cut, which was forecast by some this summer, is no longer even considered an option.
This drastic change of heart comes after several turbulent days. On Monday, oil prices skyrocketed after Saudi Arabian oil facilities were attacked, sparking worries about global oil supply. Higher oil prices can lead to inflation.
The United States and China also agreed to delay tariffs and return to the negotiating table, which removed some uncertainty.
On top of that, investors are keeping a close eye on economic data, and whether it is flashing a warning light for the economy. So far, strong American consumer spending has outweighed a slow down in manufacturing.
“Markets have scaled back their dovish expectations of late, allowing some room for a dovish surprise,” market strategists at ING wrote in a note to clients.
