With past interest rate cuts yet to revive the stumbling U.S. economy, the betting at the Chicago Board of Trade is for Federal Reserve policymakers to make another move this week.
CBOT federal funds futures are reflecting a 100 percent chance of a 25 basis point cut Wednesday from the Federal Open Market Committee.
Notably, fed funds futures also are pricing in a 54 percent chance of a 50 basis point cut, after pricing in no chance only a month ago. Recent data have shown inflation is of little immediate concern in the U.S. economy, so more Treasury market participants are looking for a half-point cut.
“Bonds have been trading to the upside last week, as the market is less worried about inflation,” said Jim Bianco, founder of Bianco Research LLC. “A more aggressive rate cut would push the market lower if inflation were in the picture.”
Moreover, Tuesday’s announcement of consumer confidence data from the Conference Board could change fed funds futures’ outlook yet again.
“Many of the changes in recent days in fed funds have been psychological,” said Daniel Grombacher, senior economist for the financial products group at the Chicago Board of Trade.
Economists are split on whether the Federal Reserve will cut rates by the more aggressive 50 basis points.
The latest BridgeNews Fed Poll found 42 percent of analysts projected a half-point cut this week, a considerable increase from the 26 percent in a poll taken at the beginning of this month; 57 percent in the latest poll expect a quarter-point cut, compared with 65 percent in the earlier survey.
The Fed has lowered interest rates 2.5 percentage points since January in a bid to rejuvenate the lethargic U.S. economy. Although many investors say that the easing cycle is near the end, the Chicago Mercantile Exchange’s eurodollar market continues to price in easing in the first quarter of next year.
