US Rate Hike Expectations Ease Amid Dovish Comments from Officials

Expectations of a potential interest rate hike by the Federal Reserve have softened following dovish comments from key US officials. According to the CME FedWatch Tool, the market-implied probability of a rate increase has dropped to 50.5%, down from recent days when it hovered near 60%. This shift in sentiment is attributed to remarks from Federal Reserve Governor Christopher Waller, who stated that he would support maintaining interest rates at current levels if inflation continues to decelerate.

However, US Vice President JD Vance has called for the Federal Reserve to cut interest rates to make housing more affordable, which may be interpreted as challenging the Fed's institutional independence. The upcoming employment and inflation metrics assume heightened critical importance ahead of the central bank's next meeting.

The comments from US officials have been reflected in the markets, with US equity benchmarks rallying amid expectations of a monetary policy pause. The S&P 500 index advanced by 1.06% to 7,747 points, while the Dow Jones Industrial Average rose by 1.18% to 53,691 points.

Data released by the Institute for Supply Management (ISM) showed that the US Services PMI accelerated from 54.1 in July to 55.4 points in August, surpassing market consensus forecast of 54.3 points. This underscores the underlying resilience of the service sector, which has remained predominantly in expansionary territory in recent years.