Probability of 50bps Fed Rate Cut in September Increases

The likelihood of a significant 50 basis point (bps) rate cut from the U.S. Federal Reserve in September has notably increased in recent days, based on data from 30-Day Fed Fund futures. The probability of lowering the target rate from the current range of 5.25% to 5.50% down to 4.75% to 5.00% has risen to 48%, up from 42% the day before and just 36% last week.

This increase in the likelihood of a larger first rate cut follows disappointing job openings data released by the Bureau of Labor Statistics and comes just ahead of the critical Nonfarm Payroll report set to be released on Friday. Job openings in July were reported at 7.673 million, falling short of the 8.09 million anticipated by economists. For August, economists expect an addition of 164,000 jobs.

Conversely, the probability of a 25 bps decrease has decreased. The current expectation for a 25 bps cut is now at 52%, down from 58% the previous day and 64% last week.

This change suggests that traders are increasingly favoring a larger rate cut during the upcoming Federal Reserve meeting on September 18, 2024.

Overall, traders see a definite possibility of a rate decision in September, with the two outcomes—25bps or 50bps—now nearly tied.

Fed Chairman Jerome Powell’s remarks at Jackson Hole on August 23, 2024, indicated that “the time has come for policy to adjust,” boosting traders’ confidence that a rate cut in September is highly probable. He further noted that “the direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”