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US short-term interest-rate futures erased earlier losses and swung higher on Wednesday after the Federal Reserve said it will be "patient" on future interest rate hikes.
Contracts tied to the Fed's policy rate continued to price about a one-in-four chance of a 2019 Fed rate hike, and contracts maturing in 2020 were signalling a small but rising chance of a rate cut then.
The Federal Reserve on Wednesday signalled its three-year-drive to tighten monetary policy may be at an end amid a suddenly cloudy outlook for the US economy due to global headwinds and impasses over trade and government budget negotiations.
The current Fed policy rate of between 2.25 percent and 2.5 percent is well below historical averages and, if it goes no higher, the Fed will have little room to battle any future downturn with rate cuts alone.
Fed Chairman Jerome Powell said the case for rate increases had “weakened” in recent weeks, with neither rising inflation or financial stability considered a risk, and “cross-currents” including slowing growth overseas and the self-inflicted wound of a federal government shutdown making the U.S.
outlook less certain.
“We are now facing a somewhat contradictory picture of generally strong U.S.
macroeconomic performance alongside growing evidence of cross-currents.
Common sense risk management suggests patiently waiting greater clarity,” Powell told reporters after the end of a two-day policy meeting.
