Traders' Rate Hike Bets Surge, Dollar Jumps Ahead Of Jackson Hole

In the lead-up to the renowned Fed’s Jackson Hole Symposium, scheduled to commence on Thursday, market participants are intensifying their bets on a potential rate hike.

Rate hike expectations for the November meeting have climbed again, as investors fear hawkish surprises from Fed members’ statements in the coming hours.

While the chances for a rate hike in September remain contained at 15%, the implied probabilities of a November rate hike have reached 47%, according to current Fed futures prices.

The current consensus appears to be that rates will remain constant in September, with a tight call between holding and raising rates in November. Following the November meeting, the chances of an increase are projected to be reduced, with odds of 38% for the December meeting. The first-rate reduction is not projected until May 2024.

MEETING DATE	DAYS TO MEETING	EASE (%)	NO CHANGE (%)	HIKE (%)
09/20/2023	27	0.00	84.50	15.50
11/01/2023	69	0.00	52.91	47.09
12/13/2023	111	4.65	51.89	43.46
01/31/2024	160	14.30	49.34	36.36
03/20/2024	209	33.05	42.77	24.18
05/01/2024	251	53.70	32.51	13.79
06/12/2024	293	73.06	20.54	6.40
07/31/2024	342	86.86	10.67	2.48

Mixed Economic Signals

The most recent economic data has produced mixed signals, but not enough to trim expectations of a rate hike. S&P Global’s Purchasing Managers’ Index (PMIs) for August came in worse than predicted for both manufacturing and services, aggravating the contraction for the former and stalling the expansion for the latter.

The job market, on the other hand, continues to show indications of resiliency, with unemployment benefits falling lower than predicted last week, to 230,000 from the previous and projected 240,000.

Durable goods orders fell 5.2% in July, the weakest month since April 2020, although the figure was distorted by a 14% decline in transportation orders.

Excluding transportation, the index increased by 0.5% in July, exceeding expectations of a 0.2% increase. Non-defense capital goods orders, excluding aircraft, up 0.1% in July, a frequently monitored sign of business spending plans.

Dollar Rises Ahead of Jackson Hole

The U.S. dollar index (DXY), as closely tracked by Invesco DB USD Index Bullish Fund ETF UUP, is up 0.3%, touching highs not seen since June 8, 2023, just ahead of the Jackson Hole meeting.

Investors will pay close attention to the remarks of Philadelphia Fed President Patrick Harker who is currently speaking with CNBC from Jackson Hole.

The official spoke in a mildly dovish tone, stating, “the Fed has probably done enough with policy, it is in restrictive stance” and “if inflation comes down next year, we could cut rates.”

At 11:15 a.m., Boston Fed President Susan Collins will speak on Yahoo! Finance.

On Thursday, Aug. 24, at 6 p.m. U.S. Mountain Time, the Fed’s annual Jackson Hole Symposium will kick off with a dinner and the full agenda will be released.

Federal Reserve Chair Jerome Powell's remarks will offer public remarks on Friday, Aug. 25 at 10:05 a.m. ET

Read now: Xi Jinping Squeezes Taiwan Ahead Of Elections With Military Drills, Trade Threats … And Mango Ban