Shift in Monetary Policy Expectations Supports Risk Assets

Risk assets appreciated notably in October, recovering somewhat from the sharp losses in recent months. The dominant driver appeared to be a delay in market expectations for the Federal Reserve to raise interest rates.

Developments during the last month

• The market-implied path of the Federal Reserve’s policy rate increase shifted further into the future, with the highest probabilities for liftoff now in the first half of 2016.
• Global risk assets rebounded, driven by the shift in expectations for a Federal Reserve rate hike.
• Oil prices also rebounded at the start of October, but remain highly volatile.
• At the end of September, U.S. money markets followed the pattern of recent quarter-ends: Overnight secured funding rates spiked and utilization of the Federal Reserve’s reverse repurchase agreement facility hit new highs.