The U.S. Federal Reserve is widely expected to cut interest rates for the first time in four years at the conclusion of its policy meeting today (Sept. 18).
Futures traders are betting 100% that the American central bank lowers interest rates, with the only debate over whether it will be a 25 or 50-basis point reduction.
Going into the central bank’s meeting, futures markets were pricing in a 60% chance that the Federal Reserve lowers interest rates half a percentage point as evidence mounts that the U.S. economy is slowing.
The benchmark fed funds rate is currently in a range of 5.25% to 5.50%, a 23-year high. The central bank has been battling inflation that peaked at an annualized rate of 9.1% in June 2022.
Economists and Wall Street analysts see today’s cut as the first in a series that is likely to lower interest rates in the U.S. a full percentage point by year’s end.
The U.S. Federal Reserve has embarked on the most aggressive monetary policy tightening regime in 40 years to contain inflation that accelerated coming out of the Covid-19 pandemic.
Some economists say the U.S. central bank has waited too long to lower interest rates and now needs to play catch-up after central banks in Canada and Europe have already begun lowering interest rates.
Inflation in the U.S. is currently at an annualized rate of 2.5%, its lowest level since February 2021 and close to the Fed’s 2% target.
With inflation contained, the central bank is now expected to turn its attention to reviving the slowing U.S. economy and focus on the labour market, which has declined in recent months.
The U.S. Federal Reserve has two remaining meetings this year, on Nov. 7 and Dec. 18.
