June 19, 2019 / 6:15 PM / a month ago

Traders bet heavy on Fed rate cuts ahead

A trader looks at a screen as a television announces that the Fed rate will remain unchanged on the floor of the New York Stock Exchange in New York, U.S., June 19, 2019. REUTERS/Lucas Jackson

(Reuters) - Traders of U.S. short-term interest rate futures added to bets that the Federal Reserve will cut interest rates starting next month, after the central bank ended a two-day policy meeting with a pledge to “act as appropriate” to sustain economic health.

That phrase, along with the Fed’s mention of rising uncertainties and projections that show a majority of Fed policymakers who view a rate cut appropriate by next year, if not this year, boosted interest-rate futures prices.

Traders now see about a 60% chance that the Fed will cut its policy rate three times by the end of the year, ending it at below 1.75%, down from 2.25% to 2.5% now.

“Anticipation of a cut is building,” said Mike Loewengart, vice president of investment strategy at E*Trade Financial. “The odds have increased for a move in July.”

Rate cuts appear to be more likely than not in the minds of policymakers as well. In fresh forecasts published after the meeting ended, seven of 17 policymakers said they expected it would be appropriate to cut rates by half of a percentage point by the end of 2019, and an eighth saw a rate cut of a quarter point as appropriate.

Reporting by Ann Saphir; Additional reporting by Shreyashi Sanyal; Editing by Chizu Nomiyama and Richard Chang

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