Investing

Chances of a September Fed rate cut increase

Traders work on the floor at the New York Stock Exchange.

Brendan McDermid | Reuters

Traders now see a bigger chance of another rate cut by the Federal Reserve in September after it lowered interest rates for the first time since 2008 and hinted at further accommodation.

The fed funds futures market now points to an 80% of at least a quarter point rate cut at the Fed’s September meeting, according to CME FedWatch tool. Prior to Fed’s decision at 2 p.m. ET, traders were pricing in about a 65% chance of a rate reduction in September.

Traders are also pricing in two more cuts on the benchmark lending rate to the range of 150 to 175 basis points by the end of 2019.

The tool is based on futures pricing from live markets and reflect the views of traders placing real bets on the CME exchange.

The policymaking Federal Open Market Committee on Wednesday dropped the target range for its overnight lending rate to 2% to 2.25%, or 25 basis points from the previous level.

The Fed also left the door open to future cuts, saying it will “act as appropriate to sustain the expansion” as it continues to evaluate the incoming data.

The central bank cited “muted inflation” in its move and also ended its balance sheet reduction two months earlier.

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