The likelihood of a 50 basis point (bps) interest rate cut by the US Federal Reserve in September has jumped overnight, according to CME Group 30-Day Fed Fund futures. After falling in recent days to low figures, expectations for a major reduction are now close to matching a smaller reduction of 25 bps.
The likelihood of a 50 bps cut at the September 18, 2024 meeting now stands at 44%, a significant increase from the previous day's 14%. Last week, the odds for a major reduction by the Fed were 40%.
On the other hand, the probability of a 25 bps reduction has decreased. The odds for a smaller reduction are now 56%, down from 86% the day before. Last week, this probability was at 60%.
An overnight spike in the chance of a 50 bps cut by the WSJ in an article published on Thursday evening suggested that Fed officials "may conclude that if they expect a move of 50 basis points to be possible in November or December, then a rate cut should be implemented now, when rates still far from the final destination.”
In the article, Jon Faust, a former senior adviser to Fed Chairman Jerome Powell, said that while he does not believe the economy is in a position to proactively require a 50 bps cut, he is more inclined to start with 50 bps. "And I still think there's a reasonable chance that the FOMC might get there, too."
That view was followed by comments from former New York Federal Reserve President Bill Dudley, who said he saw a big chance for a 50 bps cut. "I think there's a strong case for a 50 bps cut, whether they're going to do it or not," Dudley said at the Bretton Woods Committee's annual Future of Finance Forum in Singapore. He emphasized that the current rate is 150-200 basis points higher than the neutral rate.
