My reading of the Federal Reserve tea leaves suggests that the U.S. central bank is preparing the way for a 25-basis point rate cut to the Fed funds rate, come the end of the month—or year end at the latest. That would bring it to a target range of 1.50%-1.75%.

While the probability of such a reduction was already somewhat likely, there was some ebb and flow to the market’s certainty of it, to judge by the CME Fed futures trading. This higher chance of a cut is based partly on chatter from Fed officials week to week and also on the economic data.

Both now point strongly to a cut Oct. 31, when the Federal Open Market Committee finishes its next regularly scheduled 2-day meeting. This has been discounted into the market, as the Fed futures—our favorite rate cut predictor—shows investors believe there is an 89% probability of a cut. That’s up from less than 70% one week prior.

Let’s start with the dovish talk. Early in the week it seemed the groundwork was prepared for another cut. In remarks for a speech in London, Federal Reserve Bank of St. Louis President James Bullard said one of the biggest risks the economy faces is that overall activity may slow more than most now expect. This FOMC voting member continues to be a strong proponent of lowering rates. He e...

Unlock this article with a FREE 30-Day Trial!

An FSI Pro, or FSI Macro subscription is required in order to access this content.

*Free trial available only on a monthly plan

Disclosures (show)

Get invaluable analysis of the market and stocks. Cancel at any time. Start Free Trial

Articles Read 2/2

🎁 Unlock 1 extra article by joining our Community!

You’ve reached your limit of 2 free monthly articles. Please enter your email to unlock 1 more articles.

Already have an account? Sign In

Want to receive Regular Market Updates to your Inbox?

I am your default error :)