The Fed saw another 50 bps rate cut in November

(Reuters) – The Federal Reserve is more likely than not to make a second 50-basis-point interest rate cut in November, traders bet on Friday, after a government report showed U.S. inflation cooled to a slower pace close to the central bank’s 2%. objective.

Inflation by the Fed’s target measure, the year-over-year increase in the price index for personal consumption expenditures, was 2.2 percent in August, the Commerce Department reported.

That’s in line with what Fed Chairman Jerome Powell said he expected in a news conference after last week’s half-point cut. The big start to what is expected to be further policy rate cuts was aimed at bolstering what Fed policymakers see as a faltering but still solid labor market.

“If the Fed wants to cut another 50 basis points in November, inflation data won’t stand in their way,” Inflation Insights’ Omair Sharif wrote after the report. “In fact, the faster inflation cools, the more impetus there is for them to move faster to neutral.”

Interest rate futures now reflect a 54% chance of a half-point cut in November, up from a still high 46% chance of a quarter-point cut.

However, traders are betting the policy rate – now in the range of 4.75%-5.00% – will be 75bps lower by the end of the year and in the range of 3.00%-3.25% by mid-2025. That’s just above what most Fed policymakers see as the neutral rate at which the level of borrowing costs neither stimulates nor inhibits a healthy economy.

(Reporting by Ann Saphir; Editing by Christina Fincher and Andrea Ricci)