At the end of last week, interest rate futures were pricing in a virtual 100% probability that the Federal Reserve will raise the federal funds rate 25 bps at the Federal Open Market Committee meeting that ends on Wednesday.
But the futures market was also expecting at least one more interest rate hike in 2017, with the market-implied probability of another hike by year-end at 55%. I think financial stability concerns play a key role in why the Fed is hiking. Here’s why.