Rate-cut expectations are heating up after several senior Federal Reserve officials, including Chairman Jerome Powell, appeared to open the door to easier monetary policy this week.
The fed fund futures market now show traders see a 72% chance of a rate cut at the Fed’s July 31 meeting, and an around 23% probability of a rate cut in the June 19 meeting. The central bank’s policy rate currently stands between 2.25% to 2.50%.
This comes as more investors call for rate cuts to boost an economy under pressure from trade fears that have threatened to unravel global growth. President Donald Trump’s push for more aggressive trade policies, placing tariffs on China and threatening levies on Mexico, has reinforced fears of an economic slowdown.
See: Not so fast — interest-rate cuts are not a done deal, experts at Fed conference say
Recently, U.S. central bankers have helped energize bets for easier policy this year. Bond yields have fallen sharply, with the 10-yearr Treasury note yield TMUBMUSD10Y, -0.57% trading at 2.123%, near its lowest levels since Sep. 2017. Stocks also strung together back-to-back gains on Wednesday, with the S&P 500 SPX, +0.82% up 2.7% for the week.
Powell and Vice Chairman Richard Clarida both suggested on Tuesday the central bank could cut interest rates if trade battles crimp economic activity. St. Louis Fed President James Bullard said on Monday uncertainty around tariffs and subdued inflation could prompt the central bank to lower rates.
“Powell didn’t say anything earth-shattering, but he was more open to using accommodative language than the May Fed meeting when he said the economy was in great shape,” said Gary Pzegeo, head of fixed income at CIBC U.S. Private Wealth Management, in an interview.
But some analysts remain skeptical of the need for rate cuts with U.S. growth momentum still robust compared with other developed economies including the eurozone.
Economists polled by MarketWatch anticipate the U.S. to expand by a 2.4% annualized pace between April to June.
Read: Panic-stricken traders now expect Fed to cut rates twice in 2019, this chart shows
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