Futures markets are now placing the probability that the U.S. Federal Reserve will lower interest rates in December at 30%.
The odds of a December rate cut from the U.S. central bank are down substantially from greater than 95% in October of this year.
Until recently, futures traders and economists had overwhelmingly expected the Federal Reserve to lower interest rates by 25 basis points at its Dec. 10 policy meeting.
A quarter point cut would lower the target range for the central bank’s influential Fed Funds Rate to between 3.50% and 3.75%.
However, in the past week, expectations for a December interest rate reduction have fallen to 50% and now 30% as markets reassess the state of the U.S. economy heading into year’s end.
A blackout on economic data releases due to the government shutdown in Washington, D.C. has made it difficult for the central bank to make an informed decision on interest rates.
The U.S. Labor Department recently said that it won't release the jobs data for October, citing the government shutdown as the reason.
At the same time, minutes from the Federal Reserve’s most recent meeting held in October show many central bank governors want to pause interest rate cuts.
Federal Reserve Chair Jerome Powell has warned markets that a December rate cut should not be seen as a foregone conclusion.
Anecdotal and private sector information released in recent weeks paints a picture of a slowing U.S. economy even as inflation remains above the Federal Reserve’s 2% annualized target.
