Fed rate cut a foregone conclusion

CME Group's Fedwatch predicts a 72.9% chance that the Federal Open Markets Committee will lower the upper bound of the Fed Funds target rate from 250 basis points to 225 basis points at its Wednesday meeting. Additionally, the markets are giving a 27.1% probability of a larger 50 basis-point cut. Wednesday's rate cut expectations have changes little over the past four weeks and more notably, neither predictions include probabilities for no rate change.

Anticipation of rate cuts, not only by the Fed but also the European Central Bank and Bank of Japan, have already began to leach into the markets as global interest rates have slid lower. Many European sovereign yields were negative early Monday while the 10-year Treasury yield was at 2.06%. Much of the call for rate cuts is driven by concern over global growth and the need to encourage more investment. Real U.S. GDP growth as of June 30 showed the U.S. economy grew at an annual rate of 2.3%, down from 2.7% as of March 31 and 3.2% a year earlier, while inflation data was also less than promising.

CME Group calculates the probabilities based on price levels of 30-day futures contracts and assume rate change intervals of 0.25%. Probabilities shown represent what the Fed Funds rate will be at the conclusion of a given meeting.