Derivative markets suggest the Federal Reserve won't raise itstarget interest rate until after September 2015, as comments fromVice Chairman Stanley Fischer indicated escalating concern aboutgrowth outside the U.S.

Rates on federal fund futures show the likelihood of a Septemberrate increase fell to 46 percent, down from 56 percent on Oct. 10and 67 percent two months ago, according to data compiled byBloomberg. The chance of an increase in October is 56 percent. Theimplied yield on the December 2015 Eurodollar contract, the world'smost actively traded futures, traded at 0.82 percent, the lowestsince May 2013 and down from 1.085 percent a month ago.

“If foreign growth is weaker than anticipated, the consequencesfor the U.S. economy could lead the Fed to remove accommodationmore slowly than otherwise,” Fischer said in an Oct. 11 speech atthe International Monetary Fund's annual meetings inWashington.

“Fischer made it clear that if the biggest economic area in the world is going throughtrouble, then that will affect the U.S. and impact theirforecasts and they won't tighten so soon,” said Stan Jonas, who hasbeen trading money-market derivatives since Eurodollars futurestrading began in 1981, by telephone from New York. “The probabilityof the Fed's tightening priced in the market has been moved furtherout.”

Fed policy makers raised their median estimate last month forthe federal funds rate to 1.375 percent by the end of next year,compared with a June forecast of 1.125 percent. The rate has beenin a range of zero to 0.25 percent since December 2008.

Most economists predict the Fed's first rate increase will occurat a Federal Open Market Meeting that includes a press conference.Fed Chairman Janet Yellen is scheduled to speak to the pressfollowing the March, June, September, and December meetings in2015. The Fed's target rate has been locked at zero to 0.25 percentsince December 2008.

Fischer's remarks, echoed by other Fed officials, highlightedmounting concern about the improving U.S. economy's ability towithstand foreign weakness and a strengthening dollar. The commentscame the same week that minutes of the Fed's September policymeeting showed authorities highlighting worries over the risksposed to their economy by deteriorating expansions abroad and astronger dollar, which could hurt exports and dampen inflation.

The IMF last week reduced its forecasts for global growth in2015, predicting it will be 3.8 percent, compared with a Julyforecast for 4 percent, after a 3.3 percent expansion this year.Europe's economy is forecast to expand 1.3 percent next year, downfrom the 1.5 percent rate forecast in July.

–With assistance from Christopher Condon in Washington.

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