Wall Street now believes there's a better chance of a September Fed hike, thanks to a rising benchmark interest rate that some experts believe will influence the central bank.
The three-month London Interbank Offered Rate — more commonly known as Libor — is around the highest level it's been since May 2009. The rate represents how much banks around the world charge each other for short-term loans, and helps determine global rates as well.
While Libor had been dwelling below 0.3 percent for more than two years, it began rising a year ago and has been climbing steadily since late 2015. Much of the gain can be attributed to money market regulatory changes happening in October that are pushing on short-term rates. However, there could be more to it.
Libor over the past year
Some experts believe it's a telltale sign that the Fed could get pushed into hiking rates before it wants to and before much of the market expects it to. CME traders who bet on fed funds futures currently assign a 24 percent chance of a move in September, which while low is considerably higher than it's been lately. Just a few days ago, the chance was 12 percent.
After all, the Fed enacted its first hike in more than nine years in December 2015, just as Libor began its ascent. Banking analyst Dick Bove believes that if Libor continues to move higher in the weeks ahead, that could trigger a Fed move.
"All indications are that the fed funds followed Libor rather than the other way around," Bove, vice president of equity research at Rafferty Capital Markets, said in a note to clients. "If this is the case any further movement in Libor is likely to force the Federal Reserve to raise rates the fed funds rate again."