June 19, 2019 / 7:54 PM / 3 months ago

MONEY MARKETS-Traders see U.S. rate cut in July

* Traders now see 67% chance Fed cutting rates 75 bps by year-end

* Trade tensions seen as key risk to Fed’s economic outlook (Updates market action after FOMC)

By Richard Leong

NEW YORK, June 19 (Reuters) - U.S. interest rates futures prices jumped on Wednesday as traders now fully expect a rate cut from the Federal Reserve in July after policy-makers signaled they are prepared to ease policy due to greater uncertainty on the economic outlook.

The Fed’s latest guidance supported market expectations the U.S. central bank would lower key lending rates at least one more time after a possible July cut.

“The Fed leaned dovish as it noted higher uncertainty and more officials saw scope for rate cuts,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

The Federal Open Market Committee, the central bank’s rate-setting group, in its policy statement said it “will act as appropriate to sustain” the economic expansion.

Traders have piled on bets the Fed would lower interest rates multiple times by year-end as trade tensions between the United States, China and other trading partners have exacerbated a softening in global business activities.

On Tuesday, U.S. President Donald Trump said he plans to meet with his Chinese counterpart Xi Jinping at the G20 summit in Japan next week.

It is unclear when the formal U.S.-China trade negotiations will restart but the United States is “certainly willing to engage” with China in the discussions, U.S. Trade Representative Robert Lighthizer told the House of Representatives Ways and Means Committee on Wednesday.

Fed Chairman Jerome Powell said at his press conference after the latest policy meeting that news about trade has been an important driver of sentiment since the Fed’s previous meeting in May.

In late U.S. trading, federal funds futures implied traders saw a 100% likelihood the Fed would cut the target range on short-term interest rates by a quarter point to 2.00%-2.25% in six weeks, compared with an 86% chance late on Tuesday, CME Group’s FedWatch program showed.

The fed funds complex implied traders are pricing in a 67% possibility that the Fed would lower short-term rates by 75 basis points by year-end, up from 49% the day before, according to the CME FedWatch.

Additional reporting by Ann Saphir Editing by Nick Zieminski and James Dalgleish

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