CME Group's FedWatch tool predicts a cut to the Fed Funds target rate is unlikely to occur at the Federal Open Market Committee's Wednesday meeting and its upper bound will remain at 250 basis points. The same, however cannot be said for future meetings.
The probability for a 25-basis-point cut at the July 31 meeting increases to 68%. A look forward, to where the rate is expected to be into the second quarter of 2020, shows markets believe a 75- to 100-basis-point cut over the period is likely.
Rate cuts are intended to lower all borrowing rates, increase capital investment and ultimately spur global growth. The target discount rate was kept historically low at 0.25% for much of 2009 to 2015 and served as the launch pad for the global recovery from the financial crisis. While the rate was steadily increased to 2.5% since 2015, new and very real concerns over global growth prospects make a case for a change in course. How low rates can go is up for debate; the 10-year Treasury yield has slid toward 2% in recent weeks, down from around 3.2% in November.
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. Instances when rate changes are greater than 25 basis points relative to the current rate (225 to 250 basis points) indicate that a rate cut occurred in previous meetings.
