By Kim Khan
Investing.com - There is now more than a one-in-four chance that the Federal Reserve will cut interest rates next month, according to the fed funds futures market Monday.
Reacting to the sharp dive in equities and futures and the move to safe havens -- as fears of Covid-19 spreading globally increased -- investors bet that there is a much stronger chance the Fed moves quickly to provide support to the U.S. economy.
The chance of the Fed cutting interest rates by 25 basis points from the current range of 1.5% to 1.75% jumped to 26.6%, up from 11.1% late Friday and 6.6% the same time last week, according to Investing.com’s Fed Rate Monitor Tool.
There is also a more-than-50% chance rates will be lower in April. Traders are pricing in a 45.6% chance rates will be at 1.25% to 1.5% and a 10.8% chance they will be down to 1% to 1.25%.
As cases of Covid-19 jumped in Italy, South Korea and Iran, money has funneled into gold and Treasury bonds, pushing yields (effectively interest rate expectations) sharply lower.
Evercore ISI economists Krishna Guha and Ernie Tedeschi said in a note on Monday “it does not follow from this that the appropriate path of policy under the (virus) shock is unchanged," according to MarketWatch.
If new virus developments are “deeply concerning” the Fed could cut in March, likely by more than 25 basis points, they said.
The betting in fed funds futures is in sharp contrast to the rhetoric from Fed speakers that came last week, with most indicating that the current level of monetary policy looks appropriate for the rest of the year.
Atlanta Fed President Raphael Bostic said the coronavirus looked like a short-term issue.
“I have no impulses really to think that we need to do anything with our policy stance different than what we are today,” Bostic told CNBC.