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Multiple Fed Funds Cuts Coming in 2019? Futures Say Yes, But...

May 15, 2019

We Crunch the Numbers, You Make the Trade.We Crunch the Numbers, You Make the Trade.
We Crunch the Numbers, You Make the Trade.We Crunch the Numbers, You Make the Trade.

 

  • Federal-funds futures suggest investors are more convinced than ever that the Federal Reserve will lower interest rates multiple times by the end of the year, WSJ writes today
  • Since US-China trade tensions flared up recently, futures markets are showing a 22% chance of two rate cuts by the end of 2019 and an almost 6% chance of three cuts
  • Just a month ago those chances were just 6.9% and 0.7%, respectively 
  • It is consensus there will be at least one cuts before the end of the year with futures signalling a 70%+ chance
  • Check out what Fed officials are saying about tariffs: What are Fed Officials saying as the Trade War Heats Up?
  • The last time the Fed cut interest rates was December 2008 as the financial crisis was raging

 

Fed Funds Expected Outcomes and Most Likely Paths

fed funds

Source: Bloomberg

 

  • The recent string of economic data makes talk of a rate cut seem strange to some, but it is generally assumed the economy will cool somewhat in the coming quarters, increasing chances of a cut
  • At this point, Federal Reserve President Jerome Powell has made clear the position of the central bank right now is neutral-no bias towards hike or cut
  • The WSJ article points out that futures showing 2 or 3 cuts by the end of the year are more an indication of the conviction that A rate cut will happen in 2019, not that there will actually be 2 or 3
  • For instance, futures now show a 25% chance of a hike by July despite the fact that almost no one believes that will happen

 

 

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Global Top Stock IdeasTOP LONG & TOP SHORT STOCK IDEAS FOR GLOBAL MARKETSMONTHLY TOP IDEAS FROM OUR MULTI-FACTOR QUANTITATIVE MODELS