As the trade war heats up, the potential for the Federal Reserve to cut interest rates is rising.
The fed funds futures market was pricing in a full 25 basis point rate cut for this year, as stocks sold off Monday.President Donald Trump tweeted during the Fed's last meeting that it should cut interest rates and that it was holding back the economy.
On Monday, as stocks sold off, fed funds futures were pricing in a 100% chance of a quarter-point rate cut by December, and even a 60% chance of a cut by September, according to NatWest Markets. The market had been pricing in an 80% chance the Fed would cut interest rates by 25 basis points in December on Friday.
"The bond market is betting the Fed would have to come off the sidelines and cut interest rates this month," said John Briggs, head of strategy at NatWest Markets. Some market pros have been expecting an interest rate cut because in their view, the economy could need it before the end of the year. In fact, it there was an even more prevalent view several months ago, when markets feared a recession. Others take the view that the Fed will not move at all this year because the economy was improving.
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