Bond traders are increasingly losing the belief that the Federal Reserve is done with its interest rate hiking policy. Now, the odds of a quarter-point rate hike next month have been placed at 40%.
In addition to a slew of economic data due to be released in the coming week, traders are keeping a close eye on debt ceiling negotiations in Washington for guidance. Traders believe that a potential agreement to avoid an unprecedented default on the U.S. government’s loans will alter the course that the Fed takes with its monetary policy.
Still, Jack McIntyre, portfolio manager at Brandywine Global Investment Management, believes that the ongoing debt ceiling talks are not the central focus in bond traders’ minds.
“Markets are trying to look beyond the debt ceiling and to the economy, inflation, and how it influences the Fed,” McIntyre commented. “Is it a pause and then a hike again, or do they eventually cut? My bias is to wait it out, but there is a fine line between being patient and wrong.”