Recent surveys have stated that over 80% of economist thing the Fed will raise rates in September. This is in conflict with expectations from the Fed fund futures which suggest that rate is a flip of a coin at 48%. To get the same probabilities as the economists, you have to to look at the end of the year. The market is at odds with economists and the Fed based on the signals they have provided. It is notable that the market earlier in the post-crisis period expected the Fed to raise rates sooner. They were ahead of the curve and disappointed. It is being more cautious.
Survey information gets even more convoluted. A WSJ survey has rates returning to zero over the next five years at more than 50%. In the same survey, there is a 75% chance that the Fed will rise rates at a slower pace relative to current expectations for the end of 2016. The sell-down of the Fed balance sheet is also highly uncertain with only 50% of economists thinking that it will come in the next nine months.
This high level of uncertainty even with the Fed is providing a lot of market opportunities for traders to take bets versus the consensus. This has revived trading volume for interest rate products at the CME.
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