NEW YORK, July 10 (Reuters) - U.S. interest rates futures jumped on Wednesday as traders rebuilt their bets the Federal Reserve would lower key lending rates by a bold 50 basis points at month-end following Fed Chairman Jerome Powell’s dovish testimony before a House panel.
The reversal came after traders had slashed their expectations on an aggressive half-point rate decrease at the Fed’s July 30-31 policy meeting in the wake of a stronger-than-forecast increase in domestic payrolls in June.
Powell hinted the U.S. central bank may be ready to lower borrowing costs for the first time in a decade, as trade conflicts and a global slowdown may endanger the longest U.S. economic expansion on record.
“Manufacturing, trade and investment are weak all around the world. ... We have agreed to begin (trade) discussions again with China, and that is a constructive step. It doesn’t remove the uncertainty,” Powell said before the U.S. House of Representatives Financial Services Committee.
In late U.S. trading, federal funds futures implied traders now see nearly a 29% chance the U.S. central bank will decrease key money market rates by half a point at the end of July, up from 3% late on Tuesday, according to CME Group’s FedWatch program.
Fed funds contracts suggested traders still believe the Fed would opt for a more modest quarter-point cut in three weeks.
“There is still a good chance Powell surprises the markets with a 50-basis-point cut,” said Steven Blitz, chief U.S. economist at TS Lombard.
Blitz noted that at Powell’s news conference after the June policy meeting the Fed chief implied “that going big and bold at this point in the cycle can be much more effective than a string of smaller cuts.”
The fed funds complex implied traders positioned for at least another quarter-point rate cut by year-end following a possible half-point cut later this month.
Reporting by Richard Leong; editing by Jonathan Oatis