⌛ Did you miss ProPicks’ 13% gains in May? Subscribe now & catch June’s top AI-picked stocks early.Unlock Stocks

Fed-Cut Bets Firmed on Iran Tension, But Just One Easing Is Seen

Published 01/06/2020, 09:23 AM
Updated 01/06/2020, 10:08 AM
Fed-Cut Bets Firmed on Iran Tension, But Just One Easing Is Seen

(Bloomberg) -- Traders have firmed in their conviction that that the Federal Reserve will trim interest rates further as concern swirls around the deteriorating global geopolitical situation. But they’re far from pricing in the more dire economic scenarios seen several months ago.

Fed funds futures are now fully pricing in a quarter-point cut by the end of 2020. The probability of such a move was closer to 70% on Thursday. It then surged Friday in the wake of the U.S. airstrike that killed Iranian General Qassem Soleimani and upended the political situation in the Middle East. The tension also drove investors into longer-maturity Treasuries, flattening the U.S. yield curve.

Yet the level of concern the market moves are signaling remains modest relative to the second half of 2019. In early September, trade-war angst helped push expectations for where the Fed target rate might end 2020 below 0.9%. The expectation now is for it to be around 1.30%, a quarter-point below the current fed funds effective rate. The central bank lowered borrowing costs three straight times in 2019 before pausing last month.

“It’s a little premature” to price in further cuts based on geopolitics, said Subadra Rajappa, head of U.S. rates strategy at Societe Generale (PA:SOGN). “The Fed pricing aligns more with economic fundamentals -- that could of course quickly change if we saw a further sell-off in risky assets.”

This week’s economic data are expected to confirm that the services sector, which dominates U.S. economic activity, is expanding at a healthy pace.

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.