Traders still see another Fed rate cut by year-end
A U.S. flag flies on top of the Marriner S. Eccles Federal Reserve building at sunrise in Washington, D.C., U.S., on Tuesday, Oct. 28, 2014. The Federal Open Market Committee meets today and tomorrow after six weeks of volatility in global financial markets. Since the FOMC met in mid-September, oil prices have tumbled 14 percent, and the Standard & Poor's 500 Index of stocks dropped as much as 7.4 percent from a record close. Photographer: Andrew Harrer/Bloomberg
The central bank cut rates by a quarter point at today's meeting.
Futures traders still see about another quarter-point of easing from the Federal Reserve this year, after the central bank cut rates by a quarter point Wednesday and said it will “act as appropriate” to sustain the economic expansion.
The rate on the January 2020 fed funds futures contract was about 1.63% after the central bank’s announcement.
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The dot plot accompanying the statement shows policy makers’ median projections are for interest rates to remain on hold this year and next, but the balance of views has shifted more dovishly.
Judging by this level, traders still expect one more cut as one of the Fed’s two remaining decisions this year — on Oct. 30 and Dec. 11.
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This estimate of the market’s pricing assumes that the effective funds rate moves toward the middle of the Fed’s new target range of 1.75% to 2%.
The effective funds rate rose above the previous range of 2%-2.25% as of Tuesday, at 2.30%, an indicator of the strains that have convulsed the funding market this week.
That market pricing for further Fed easing may also include further adjustments to the interest rate on excess reserves, which the Fed also lowered Wednesday, by 30 basis points.
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