(Reuters) – Traders see a stronger chance the Federal Reserve will end up delivering another interest-rate hike this year, and keep rates higher for longer next year, after U.S. data on Thursday showed that consumer prices rose more than expected in September.
Futures contracts that settle to the Fed policy rate now reflect about a 40% probability of a rate hike in December, compared with about a 28% chance seen before the report, which showed that the consumer price index rose 3.7% from a year ago. Analysts had expected a 3.6% rise.
Another quarter-point interest-rate hike would bring the Fed policy rate to a range of 5.5%-5.75%.
Traders now see interest rates ending next year about a percentage point lower, at 4.6%. Before the report the futures contracts pointed to a year-end rate of 4.5%.
The Federal Open Market Committee targets 2% inflation.
“Overall, there is probably not enough in the report alone to suggest to the FOMC that it needs to be tightening policy again in November, but it will see it as justifying its message that policy needs to remain ‘tighter for longer,’ with the prospect of another rate rise still being kept on the table,” said Stuart Cole, chief macro economist at Equiti Capital.
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