Traders Bet Against Interest Rate Increases In Front Of Wednesday’s Decision

Even then, however, it's curious that the professional traders are looking for rates to possibly even move lower in 2020, while the Fed continues to call for slightly higher interest rates in 2020 and 2021.

One big caveat has to be acknowledged. That is, the interest rate futures used as the basis for the odds-making model may be widely used as a hedge rather than a straight-forward speculation. In other words, while the futures suggest the pros are betting against more rate increases, they may be taking on what they know could be losing trades because they'll likely make even more money if they're wrong about rates.

We're also closer to the beginning of the year than the end of it. Traders would make bets on higher rates later on, when there's more visibility and clarity.

Still, that would be a relatively unusual kind of activity from the speculative futures market. More often than not, the pros trade these instruments on a straight-forward basis.

Bottom Line on Interest Rate Decision

Whatever the case, Wednesday's news is going to be well-watched. In the unlikely even the FOMC does raise rates, though it would point to economic strength, investors may not like the perceived implications. In a similar vein, if the Fed doesn't raise rates but still reveals some hawkish plans for 2019 despite the impact of the government shutdown, that too could scare investors. A little more dovishness would be well received, though ironically, the wrong spin on any fresh dovishness could also lead investors into thinking the FOMC sees something troubling on the horizon.

It appears some futures traders, however, already see that trouble.

Either way, buckle up. The Fed's decision should be posted around 2 pm on Wednesday.

1 2
View single page >> |
How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.


Leave a comment to automatically be entered into our contest to win a free Echo Show.