According to the FedWatch tool of the Chicago Mercantile Exchange, the probability of the Fed cutting interest rates by 50 basis points in September has increased significantly in 30 days' federal fund rate futures trading.

This may be related to the recent increase in calls for the Fed to cut interest rates as soon as possible. Bill Dudley, former president of the New York Fed, called on the Fed on Wednesday to cut interest rates as soon as next week in light of concerns about an economic recession, reversing his long-standing view that the Fed should maintain a "higher and longer" interest rate policy.

Data shows that the probability of the target rate being lowered by 50 basis points to 4.75-5.00% at the meeting scheduled for September 18, 2024, has risen to 22.3%. This is a significant increase compared to the previous day's 10.7% probability and a sharp contrast to the 3% probability last week.

On the other hand, the probability of the target rate being lowered by 25 basis points to 5.00-5.25% by the Fed has fallen to 76.2%. This is a significant decrease compared to the previous day's 89.1% probability and a large decrease compared to the 95% probability recorded last week.

There is even an increasing possibility of a 75 basis point interest rate cut in September. The probability of the target rate being cut to 4.50-4.75% has risen from 0.3% on the previous trading day to 1.5%, while this possibility was zero last week.

The changes in these probabilities indicate that traders' sentiment is changing. The increasing probability of the target rate being lowered to 4.75-5.00% is particularly noteworthy, as this indicates that people's expectations of a 50 basis point interest rate cut at the September meeting are constantly increasing.

In fact, some Wall Street investment banks also believe that as more and more signs of weakness in the economy emerge, the Fed's interest rate cut window is narrowing, and the first interest rate cut may be larger than expected.

Madhavi Bokil, Senior Vice President of Moody's, said last week that if the Federal Open Market Committee (FOMC) decided to stand still at its July meeting, the labor market could further weaken, thereby increasing the probability of a 50 basis point interest rate cut in September.

Yung-Yu Ma, Chief Investment Officer of BMO Wealth Management, also said in an interview with CNBC on Thursday that the Fed may cut interest rates by 50 basis points in September.

Some economists are worried that the resilience of US consumer spending and the seemingly unlikely significant increase in unemployment rates suggest that the Fed should still be cautious.

In a recent Reuters survey, an increasing number of economists said that the Fed will only cut interest rates once each in September and December this year, which is a view they have held for the past four months.

All 100 economists surveyed said that the Fed will maintain interest rates on July 31, but more than 80% of economists (82 out of 100) predict a first rate cut of 25 basis points in September, up from nearly two-thirds last month. Fifteen expect the first cut in November or December, and only three say the Fed will wait until next year.

Jonathan Pingle, chief economist at UBS, wrote: "We expect the target rate to be cut 25 basis points at the September and December FOMC meetings unless there is significant upward inflation data. Also, there needs to be unexpectedly weak employment data to create a sense of urgency for a larger rate cut this year."

Editor/Lambor