Traders Rush Away From Wagers on a Half-Point July Fed Cut
Traders Rush Away From Wagers on a Half-Point July Fed Cut
(Bloomberg) -- Traders on Friday rushed away from bets that the Federal Reserve will slash rates by a half-point this month, a day after clamoring for them.
Rates spiked sharply across short-end markets, while Treasuries were sold across the curve and the dollar climbed to a session high. The implied yield on the August fed funds contract -- which indicates where the market sees the central bank’s key rate after its July 31 decision -- surged 8.5 basis points to around 2.10%. With the current effective fed funds rate at 2.41%, the market is now pricing in 31 basis points of easing for the upcoming meeting.
That suggests traders see a 25-basis-point cut as more likely than something larger. Thursday, a reduction twice that size was seen as more probable.
A 50-basis-point cut from the Fed comes “when the financial system is on fire, or a key global risk is in full swing,” said Bank of New York Mellon foreign-exchange strategist John Velis. “Even a bear like me wouldn’t say we’re at that point.”
The market started backtracking after the New York Fed decided to walk back some earlier comments by President John Williams that had been perceived dovishly. The move gained further momentum after a Wall Street Journal article suggested that the central bank was signaling a smaller reduction. The story didn’t cite new public comments from policy makers. The shift in market sentiment was also supported as James Bullard, one of the central bank’s most dovish members, said he favors lowering rates by a quarter point.
--With assistance from Alyce Andres.
To contact the reporters on this story: Benjamin Purvis in New York at bpurvis@bloomberg.net;Vivien Lou Chen in San Francisco at vchen1@bloomberg.net
To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net, Nick Baker
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