Fed funds futures are now pricing a 31.1% chance that the Federal Reserve will cut rates by 25 bps for the year end meeting scheduled for Dec. 16 amid a growing U.S. trade deficit and increasing continuing claims report released today.
The U.S. monthly trade deficit grew more than expected in July, deteriorating 5.7% to $62.2 billion to mark the deepest monthly deficit since March 2007. The consensus was expecting the deficit to come in at $58.0 billion, following an upwardly revised $58.8 billion in June, the U.S. Census Bureau reported Thursday.
The implied probability for a rate cut has increased for the meeting scheduled on October 29 as Fed funds future are pricing in a 19.6% chance of a 25 bps rate cut, up from yesterday's 7.7% expectation.
Initial claims for unemployment benefits in the United States came in just slightly above expectations, but still fell 6k to 445k in the week ending Sept. 6 from the previous week's upwardly revised figure, the Department of Labor reported on Thursday. Continuing claims rose to 3.525 million for the week ending Aug. 30 from the previous week's downwardly revised figure of 3.403 million.
Looking to next week's Federal Reserve meeting scheduled for September 16, fed funds futures are pricing in a 90% chance of a rate hold, but are also pricing in a 10% chance that the fed will cut the fed funds rate to 1.75%. This is an increase from yesterday's 4% expectation and last month's 0.00%.
By Steve Stecyk
©CEP News Ltd. 2008