The market no longer believes the Fed intends to hike rates in March.
Futures traders at the CME now indicate the central bank will not move on rates until June, following a major selloff in the market Friday morning. The chance of a March hike, above 50 percent just a few days ago, has dwindled to 35 percent.
The next closest month for a hike is now June, which has a 54 percent probability. Earlier in the morning, expectations had put the hike off until July, but that pulled in after New York Fed President William Dudley said in a speech that he still sees rates on a steady trajectory higher.
The decline comes amid a slowing economy, tumbling oil and weakness in Japan. Fed officials, who had indicated in December hopes to raise rates four times in 2016, have been backing off amid the turmoil.
St. Louis Fed President James Bullard said in a speech Thursday morning that the continuing plunge in oil prices could impact the U.S. central bank's decision-making process. Oil is down nearly 18 percent in January alone, pulling the stock market down with it and causing worries that the U.S. economy will enter a prolonged slowdown. The S&P 500 is off nearly 8 percent for the month.
The Federal Open Market Committee in December raised the target a quarter-point for the funds rate it uses to influence broader interest rates. It was the first rate hike in more than nine years, and Fed officials indicated they expect four more hikes this year. Under current trading expectations, there is virtually no chance of that happening.