The probability of an increase in the US official rate, known as the federal funds rate, has gone ballistic in the last week. Prior to Tuesday (US time), markets had about a 1-in-3 chance of a 0.25% rate rise at the FOMC’s March meeting (the FOMC is the US Federal Reserve’s rate setting committee).
A look at the US futures trading on Tuesday shows how prices moved suddenly in a fashion which indicated traders thought the probability of a rate rise was considerably higher, only then to drop back by the end of the trading day. However, it set the trend for the rest of the week. The next day futures prices fell, implying a higher yield and a doubling in the probability of a move by the FOMC in the middle of March. Over the next two days, US traders increased the probability of a March rate rise to 80%.
