A stock market selloff in holiday-thinned trading led Fed funds futures traders to aggressively price in U.S. interest rate cuts.
Fed funds futures are pricing in a 92% chance that the Federal Reserve will slash rates by 50 basis points at the Dec. 16 FOMC meeting or sooner. A day ago, the implied percentage was 82%.
The implied probability for a minimum 25 basis point rate cut remains fully priced in.
The current fed funds rate of 1.00% is the lowest since the period from June 2003 to May 2004. A further cut would bring it to the lowest since at least 1971.
One week ago, the fed funds market was evenly balanced between a 25 bps cut and a 50 bps cut.
The increased expectations of an aggressive cut come after another equity market decline on Tuesday. Fixed income trading was closed in the United States for Veteran's Day, but derivatives trading was open. Late in the session, the S&P 500 was down 17 points to 902, which would be the lowest closing level since Oct. 27.
All data taken at 3:50 p.m. EST.
By Adam Button and edited by Sarah Sussman
©CEP News Ltd. 2008