NEW YORK (Reuters) - U.S. interest rates futures dipped on Thursday amid concerns over how soon the Bank of Japan and European Central Bank may decide to scale back massive stimulus programs aimed at supporting their economies.
Those concerns, which have been stoked by an improving global economic backdrop, were somewhat allayed after BOJ and ECB officials downplayed such a move in the foreseeable future.
BOJ Deputy Governor Kikuo Iwata said earlier Thursday it would be tough for the central bank to release the scenarios on how it would withdraw its stimulus in the future.
ECB President ECB Mario Draghi said policy normalization was not discussed at the central bank’s latest meeting earlier Thursday, where it lowered its inflation forecast.
On the other hand, ECB bumped up its growth estimates for Europe and removed a reference in its policy statement on further interest rate cuts.
In the United States, the government reported a drop in first-time filings for jobless benefits last week, suggesting a further tightening in the domestic labor market despite a recent slowdown in hiring.
Federal funds futures implied traders priced in about a 96 percent probability that the Federal Reserve would raise key short-term rates by a quarter point to 1.00-1.25 percent at a policy meeting next Tuesday and Wednesday FFM7 FFN7, little changed from Wednesday’s close, according to CME Group’s FedWatch program.
However, rate futures suggested traders were far more confident on a rate hike after next week as they speculated on when Fed policymakers would announce their plan to reduce the central bank’s $4.5 trillion balance sheet.
Fed funds futures implied traders saw about a one-in-four chance of a rate increase to 1.25-1.50 percent at the Fed’s September policy meeting and slightly above a 50 percent of a rate of such a move at its December meeting FFU7 FFZ&, CME’s FedWatch showed.
Reporting by Richard Leong; Editing by Bernadette Baum