Likelihood of Fed rate cut by 50 basis points in September, by Investing.com

The likelihood of a further 50 basis point (bps) rate cut from the US Federal Reserve in September has seen a notable increase in recent days, according to data from CME Group (NASDAQ: ) 30-Day Fed Fund futures. The probability of a drop in the target rate from the current rate of 5.25 – 5.50% to 4.75 – 5.00% is now 48%, a notable increase from the previous day’s probability of 42% and the week’s probability passed by only 36%.

The increase in the likelihood of a bigger first-rate cut follows today’s weaker jobs data from the Bureau of Labor Statistics and comes ahead of the all-important Nonfarm payrolls report due on Friday. July jobs were reported at 7.673 million, less than the 8.09 million expected by economists. On Friday, economists are looking for 164,000 jobs added in August.

Meanwhile, the potential for a 25 bps drop from the current rate has receded. The current probability of a 25 bps cut is now 52%, down from the previous day’s probability of 58% and last week’s probability of 64%.

This change in probability suggests that traders are increasingly betting on a bigger rate cut at the upcoming Federal Reserve meeting on September 18, 2024.

Traders generally expect a 100% chance of a rate in September, with the two potential outcomes – 25 bps or 50 bps – now crucial.

Fed Chairman Jerome Powell’s comments in Jackson Hole on August 23, 2024 that “the time has come for policy to adjust” gave traders confidence that a rate cut in September is all but 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.