NEW YORK, Nov 26 (Reuters) - Futures on the U.S. federal funds rate, which track short-term interest rate expectations, jumped on Friday as a new coronavirus variant detected overseas rocked market sentiment and investors rethought bets the Federal Reserve would move quickly to hike rates to quell inflation.
A near across-the-board jump in CBOE fed funds futures upended market expectations the Fed would raise the fed funds rate from its current 0-0.25% as soon as mid 2022, after it concludes tapering its bond purchase program put in place early in the pandemic.
According to CME's FedWatch tool (https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html) money market traders were pricing in a 58.5% chance of at least a 0.25% hike by the Federal Open Market Committee's June meeting, down from an 82.1% chance Wednesday before the U.S. Thanksgiving holiday, and a 67% chance a week ago, before President Joe Biden renominated Jerome Powell to be Fed chair.
Odds of a hike at the July meeting were at 69%, down from 88% on Wednesday and 77.2% last week. September tightening odds were at 79.7%, down from 94.5% and 88.1%.
By December 2022 the market sees a 92% chance rates will be hiked by at least 25 basis points, versus 99% the prior session and 94% last Friday. (Reporting by Alden Bentley Editing by Chris Reese)
