(Reuters) - U.S. short-term interest rate futures rose on Friday as traders scaled back expectations that the Federal Reserve will raise interest rates further this year after Fed Chair Janet Yellen skipped mention of monetary policy in a widely anticipated speech.
Yellen’s comments focused on financial stability and bank regulation in defense of stronger oversight of the financial system after the Great Recession.
“The balance of research suggests that the core reforms we have put in place have substantially boosted resilience without unduly limiting credit availability or economic growth,” Yellen said on Friday at an annual central bank research conference in Jackson Hole, Wyoming.
Some traders had prepared for possible hints from Yellen on the Fed’s plan to reduce its $4.2 trillion worth of Treasuries and mortgage-backed securities holdings as well as her view on the chances for a third rate increase in 2017.
The Fed raised U.S. overnight borrowing costs in March and June. Its target range on the federal funds rate is 1.00 percent to 1.25 percent.
At 1:02 p.m. (1702 GMT), fed funds futures contracts implied traders priced in a 37 percent chance the U.S. central bank would raise rates at its Dec. 12-13 policy meeting, compared with 44 percent prior to Yellen’s speech, CME Group’s FedWatch tool showed.
While the labor market has showed further improvement this year and the stock market reached record levels in July, several Fed officials have downplayed the need for further rate increases as domestic inflation has been stuck below the Fed’s 2 percent goal.
Traders continue to see the Fed as likely to wait until next June to raise interest rates, based on a Reuters analysis of fed funds futures traded at CME Group Inc’s Chicago Board of Trade. Before Yellen’s remarks, traders saw close to an even chance of a March rate hike.
Reporting by Ann Saphir and Richard Leong; Editing by Chizu Nomiyama and Dan Grebler