Traders are ‘flirting’ with the idea of another Fed rate hike

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Traders are ‘flirting’ with the idea of another Fed rate hike
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A small probability of another rate hike by the Federal Reserve in the next three months is showing up in options tied to the Secured Overnight Financing Rate, according to Ben Emons of NewEdge Wealth in New York.

It’s taken months to sink in, but traders are finally coming around to the once-unthinkable scenario of possibly no rate cuts in 2024, and are now even considering the idea of another hike by the U.S. central bank.

“The elusive ‘last’ rate increase that has been dangling since the summer of 2023 is ‘quietly’ making a comeback,” he said. “It is, however, not surprising because several FOMC members,” including Fed Chairman Jerome Powell, “have kept the option of a hike on the table.” The last time that the Fed’s meeting minutes were released was on Jan. 3, when the record of the central bank’s December gathering showed that officials hadn’t yet ruled out further rate hikes. Nonetheless, investors and traders started pricing in as many as six or seven quarter-point rate cuts for this year, more than policymakers had indicated would be appropriate.

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