Askume, Sept 13 – Trading in interest rate futures contracts on Friday showed the probability of a sharp rate cut by the Federal Reserve next week is about as high as a modest rate cut, as financial markets await news.
A quarter-point rate cut by the Fed at its September 17-18 meeting is still considered the slightly more likely outcome, but by a smaller margin.
Futures tied to the Fed’s policy rate currently show a 43% chance that the Fed will lower the policy rate by half a percentage point, given the current interest rate range of 5.25%-5.50%. That’s up from about 28% on Thursday.
The market moves reflect growing bets among traders that the Fed may try to head off a slowdown in the labor market with an initial small interest rate cut rather than taking a dovish stance and waiting to see what happens next.
“Our view is that the Fed is behind schedule – it should have eased interest rates in June or possibly early May, but it needs to pick up the pace now and cut rates some more.
Federal Reserve Chairman Jerome Powell said last month that he did not want to see the labor market slide into another recession.
Other Fed policymakers have since expressed sympathy for this outlook, including San Francisco Fed President Mary Daly, who said a weak job market would be unwelcome. Fed Governor Chris Waller said he would support a rate cut if conditions remained favorable.
Typically, Powell holds a half-hour one-on-one meeting with each policy maker before policy meetings on Thursdays and Fridays to discuss the available options and under what economic conditions one of them might be preferred.
