Traders pile into bets on Fed interest-rate cuts this year

The Federal Reserve is just about done being patient.

That was the view of traders in short-term interest rate futures Friday, after a government report showed U.S. employers sharply slowed hiring in May.

Traders jumped on the report as a sign of a cooling labor market that would force the Fed to start cutting its policy rate in July and reduce it twice more by the end of the year.

Bets for two rate cuts had been priced into the market, mostly in reaction to mounting trade tensions that are expected to slow economic growth.

The U.S. central bank, which raised interest rates four times last year, signaled earlier this year it is on hold for the rest of 2019, saying it will be patient in assessing economic data.

“Today’s report certainly supports the case for the Fed to cut interest rates sooner rather than later,” said Russell Price, chief economist at Ameriprise Financial Services in Troy, Michigan. “It shows both that the pace of economic growth may be slowing and yet serious wage inflation pressure seem to remain elusive.”

Traders now see a 65% chance that short-term interest rates will end the year at between 1.5% and 1.75%, down from 2.25% to 2.5% now, according to a Reuters analysis of the rate contracts.


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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell