Data, Tighter Financial Conditions Might Lower Odds of December Fed Rate Hike — Market Talk

What happened

A BondBloxx Investment Management strategist said softer labor market data, evidence of slowing consumer demand, or tighter financial conditions could lower the odds of a Federal Reserve rate hike in December. Money markets price a 74% probability of a 25-basis-point hike in December, according to LSEG.

Confirmed

Global impact / market context

A rate hike means the Fed raises the cost of borrowing, which can slow spending by companies and households. If softer data makes a December hike less likely, borrowing costs may stay lower, supporting company capital spending and the value investors place on assets.

Analyst inference

Money markets currently assign a 74% probability to a December increase, which means traders mostly expect a hike. The strategist notes those expectations can shift quickly when new data challenge the view of a resilient economy, so positioning may change as reports arrive.

Analyst inference

What to watch

1. Watch labor market data and signs of consumer demand, since the strategist says softer readings could reduce the odds of a December Fed rate hike. Confirmed
2. Watch whether money market odds stay near the 74% probability for a 25-basis-point hike, because a shift would show traders changing their positioning on borrowing costs. Analyst inference
3. Watch financial conditions, which means how easy or costly it is to borrow and invest; added tightening could lower the odds of a December hike, per the strategist. Analyst inference

Evidence

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