(Reuters) -Cooling inflation will allow the Federal Reserve to forgo any more rate hikes and indeed to start cutting rates by May, traders bet on Tuesday, after a U.S. government report showed consumer prices for October did not rise from the prior month.
Prices of futures contracts that settle to the Fed’s target rate were pricing in only about a 5% chance the Fed will raise its policy rate any higher than the current 5.25%-5.50% range.
They had priced in as much as a 28% chance of a rate hike by January, before the report which showed the consumer price index rose just 3.2% from a year earlier, after rising 3.7% in September.
“You can say goodbye to the rate hiking era,” said Brian Jacobsen, chief economist at Annex Wealth Management.
The Fed is now seen as more likely than not to deliver its first rate cut in May, and end 2024 with the short-term benchmark rate a full percentage point lower than today, based on rate futures pricing.