Traders bet on more easing as Fed opts for half-point rate cut
US interest-rate cuts after the Federal Reserve reduced its benchmark by half a point and signaled more cuts coming this year.
The market is now pricing in another 70 basis points worth of rate reductions at the Fed’s two remaining meetings this year, reflecting a far more aggressive stance than policymakers. Officials on Wednesday forecast just a half-point of further easing in 2024, though Chair Jerome Powell made clear that Wednesday’s decision wasn’t indicative of the pace ahead for cuts.
Treasuries, which are set for a fifth-straight month of gains in September, slipped after the Fed’s decision and Powell’s remarks. Still, Jamie Patton, co-head of global rates at the TCW Group Inc., said traders are correct to price in more rate cuts than Fed officials implied in their so-called dot plot.
“The market has historically done an OK job of predicting the amount and pace of early cuts,” she said. “But, in the most-recent three cycles, rates have grossly underestimated the total amount of cuts. We think this time is no different, and we’ll see that same theme again this cycle.”
Ahead of the announcement, a majority of forecasters had predicted the Fed would kick off its rate-cutting cycle with a quarter-point cut on Wednesday. However, some economists — including those at JPMorgan Chase & Co. and Bloomberg Economics — had expected a half-point move, while traders were split.
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