The likelihood of a larger 50 basis point (bps) rate cut from the U.S. Federal Reserve in September has seen a notable increase in recent days, according to data from the CME Group (NASDAQ:CME) 30-Day Fed Fund futures. The probability of a decrease in the target rate from the current 5.25 – 5.50% rate to 4.75 – 5.00% now stands at 48%, a notable rise from the previous day’s probability of 42% and last week’s probability of just 36%.
The jump in the probability of a larger first rate cut follows today’s weaker job openings data from the Bureau of Labor Statistics and comes ahead of the all-important Nonfarm payroll report due on Friday. Job openings in July were reported at 7.673 million, lower than the 8.09 million expected by economists. On Friday, economists are looking for 164,000 job additions in August.
Meanwhile, the potential for a 25 bps decrease from the current rate has fallen. The current probability for a 25 bps cut now stands at 52%, a decrease from the previous day’s probability of 58% and last week’s probability of 64%.
This shift in probability suggests traders are increasingly betting on a larger rate cut at the upcoming Federal Reserve meeting on September 18, 2024.
Overall, traders expect a 100% chance of a September rate, with the two potential outcomes – 25bps or 50bps – now essentially neck and neck.
Fed Chairman Jerome Powell’s comments at Jackson Hole on August 23, 2024, that “the time has come for policy to adjust” has given traders confidence that a rate cut in September is nearly guaranteed. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks,” Powell added.