The Federal Reserve won't hike interest rates on June 25 and may not hike in August, articles in the Wall Street Journal and Financial Times suggest.
The articles follow up a story in Monday's Washington Post that cited unnamed sources and said Federal Reserve Chairman Ben Bernanke has no plans to raise rates. Combined, they suggest a co-ordinated effort by policy-makers to cool market expectations for rate hikes which have been aggressively pricing in rate hikes to cool inflation.
"The Federal Reserve is almost certain to leave interest rates unchanged when it meets next week," wrote Sudeep Reddy on the front page of the Wall Street Journal.
"The Fed's policy statement following its meeting next Tuesday and Wednesday is likely to use stronger language about the risks from inflation than in May, but is unlikely to go so far as to ratify market expectations of a rate hike as soon as August."
On Monday, fed funds futures were pricing in a 26% chance of a hike on June 26 and a 68% chance of a hike in August.
The WSJ said the Fed will take a wait-and-see approach and only hike if the economy and financial system improve or inflation "worsens significantly."
The story in the Financial Times cites "some senior Fed officials" and says "they do not dispute that the next move in U.S. interest rates is very likely to be up. But they feel the market may be pricing in too much tightening too soon."
The article was written by Krishna Guha and appears on the front page. It suggested upcoming reports on inflation and jobs will be closely scrutinized by the Fed.
"They think incoming information will clarify whether the Fed should start moving rates up quite quickly," the article said.
Strategists have credited the stories for a rally in Treasuries, softness in the U.S. dollar and re-pricing of rate hike expectations. Fed fund futures now show only a 14% chance of a hike next year and 51% chance of a hike in August.
Steve Malyon, currency strategist at Scotia Capital, said the U.S. dollar will weaken as rate hike expectations are cooled.
"We certainly agree with the spirit of the articles and have flagged this as one reason why we think last week's USD rally cannot be sustained in the near term," wrote Malyon in a note.
William O'Donnell, fixed income strategist at UBS, said expectations for higher rates have pushed up mortgage rates, something the Fed doesn't want to do.
"We are not at all surprised that the Fed is trying to get the market to chill a little over rate hikes. Tight credit conditions and the recent back-up in rates have teamed to push mortgage rates up significantly- just when we have a record inventory of unsold homes on the market," O'Donnell said in a note to clients.
By Adam Button and edited by Nancy Girgis