The Federal Reserve pauses interest rate cut bets! Traders expect nearly an 80% probability in January next year
CME tools show that this Friday, the futures market expects the probability of a pause in interest rate cuts in December to be about 35%, and the probability of a pause in January next year to be about 78%. The probabilities expected before the Federal Reserve announced the interest rate cut on Thursday were 33% and 67%, respectively. Goldman Sachs currently expects a 25 basis point rate cut in June and September next year, previously predicting cuts in May and June
This week, as expected by the market, the Federal Reserve's FOMC lowered interest rates by 25 basis points. Although the Fed did not hint at pausing actions in the future, Wall Street's bets on pausing rate cuts seem to be quietly increasing.
On Friday, November 7th, during intraday trading of U.S. stocks, the CME's FedWatch Tool showed that traders in the federal funds futures market expect a nearly 65% probability of the Fed cutting rates by another 25 basis points in December, marking the second consecutive cut this year, while the probability of keeping the current rate unchanged, i.e., pausing rate cuts, exceeds 35%.
Before the Fed announced the 25 basis point cut on Thursday during the U.S. stock market's midday session, the CME tool indicated a 33% probability of a 25 basis point cut in December, meaning investors have increased their bets on a pause in rate cuts in December.
A greater expected probability appears in January. On Friday, the CME tool showed that the probability of the federal funds rate remaining in the range of 4.5% to 4.75% in January is only about 22%, in other words, the probability of pausing rate cuts in January is slightly over 78%. Before the Fed's announcement of the rate cut on Thursday, the CME tool indicated a 67% probability of pausing rate cuts in January.
Goldman Sachs economists also adjusted their rate cut expectations for next year after the Fed meeting, anticipating a slowdown in the pace of rate cuts. The team led by Goldman Sachs Chief Economist Jan Hatzius wrote in a report on Thursday, November 7th, that the Fed may wish to be more cautious in its actions after cutting rates by 25 basis points.
Goldman Sachs currently expects the Fed to cut rates by 25 basis points at the meetings in December, January, and March of next year, followed by cuts of 25 basis points in June and September of next year. Previously, Goldman Sachs had predicted cuts of 25 basis points in May and June