The probabilities are based on trading in CME Fed Funds futures contracts.
Federal Reserve Bank Chair Jerome Powell speaks during a House Financial Services Committee hearing on the Federal Reserve's Semi-Annual Monetary Policy Report at the U.S. Capitol on July 10, 2024 in Washington, DC.Traders are now 100% certain the Federal Reserve will cut interest rates by September.
There are now 93.3% odds that the Fed's target range for the federal funds rate, its key rate, will be lowered by a quarter percentage point to 5% to 5.25% in September from the current 5.25% to 5.5%, according. And there are 6.7% odds that the rate will be a half percentage point lower in September, accounting for some traders believing the Fed will cut at its meeting at the end of July and again in September, says the tool. Taken together, you get the 100% odds.
The CME FedWatch Tool computes the probabilities based on trading in fed funds futures contracts at the exchange, where traders are placing their bets on the level of the effective fed funds rate in 30-day increments. Simply put, this is a reflection of where traders are putting their money.
Fed Chairman Jerome Powell's recent hints have also cemented traders' belief that the central bank will act by September. On Monday, Powell said the Fed wouldn't wait for inflation to get all the way to its 2% target rate before it began cutting, because of the lag effects of tightening."What increases that confidence in that is more good inflation data, and lately here we have been getting some of that," added Powell.
The Fed next decides on interest rates on July 31 and again on Sept 18. It doesn't meet on rates in August.
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