Fed funds futures suggest 75 basis point rate cut by March 18 now a certainty

Discussion in 'Economics' started by bond tr4der, Mar 2, 2008.

  1. http://money.cnn.com/news/newsfeeds/articles/newstex/AFX-0013-23402327.htm

    Fed funds futures suggest 75 basis point rate cut by March 18 now a certainty
    February 29, 2008: 12:46 PM EST

    NEW YORK, Feb. 29, 2008 (Thomson Financial delivered by Newstex) -- The odds of further interest rate cuts jumped Friday, with weak regional manufacturing data, increased concerns over the financial sector and a sharp drop in equity markets suggested a need for more stimulus from the Federal Reserve.

    March fed funds futures hiked up 0.04 points to 97.315, which implies a 100% chance that the Fed will cut its target for overnight rates by 75 basis points to 2.25% by the March 18 policy setting meeting. The odds of a full percentage-point cut by then are now 75%.

    Late Thursday, the odds of a 75 basis point cut were 87% and the chance of a 100 basis point cut was 66%.

    May fed funds futures surged 0.105 points to 97.95, implying a 95% chance that overnight rates will be at 2% after the next 2 Fed meetings (March 18 and April 30), compared with a 85% chance late Thursday.

    Earlier, The National Association of Purchasing Management-Chicago said it index of business activity in the Chicago area plunged to 44.5 in February much worse than the median estimate of economists surveyed by IFR Markets of 50.0. Readings below 50 signal business contraction.

    Separately, a disappointing quarterly report from blue chip insurance company American International Group (NYSE:AIG) weighed on the financial sector, and helped drive the Dow industrials down over 200 points in intraday trading.

    Tomi Kilgore
    Copyright Thomson Financial News Limited 2007. All rights reserved.

    The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.

    Newstex ID: AFX-0013-23402327


    Now correct me if I'm wrong, but is the above article in error? Is fed fund futures really pricing in a .75 to 1% cut? I was going to call BS at first until I realized that Fed fund futures should average around 3% till March 18. It would have to drop significantly to get the implied rate to average at 2.685% for the month.
  2. I just looked up the April contract which is currently trading at 97.67

    So who knows.
  3. shit, might as well cut it to zero and get it over with.
  4. your right neither will do as much good as they would hope for . maybe if day was to join he could straightnen some shit out !!! ,,, around there for them !! jake
  5. 1) The math in that article is wrong.
    2) The expected aggressive easing in the next few months is probably an attempt to ease the pain of mortgage resets that are indexed to short-term interest rates.
    3) Put on your "steepeners".
  6. lol, if this happens i wonder how far agriculture and metal commodities run up?

    inflation will spike, growth will slow to a crawl or even negative. then what? inflation expectations go through the roof and the fed is stuck. raise rates big to combat inflation expectations and completely tank the economy or raise rates small having basically no effect.
  7. Commodities seem to decline before Fed meetings. We'll see if history repeats itself.
  8. [​IMG]

    What a perplexing chart. I believe it's based on binary options. 15% chance of 75 bps cut. 30% chance of 100 bps cut. 55% chance of 50 bps cut. How can the market be pricing in a 100 bps cut?

    March fed fund futures currently trading at 97.34. Implied average for the month is around 2.66%. If fed cuts 75% on the 18th, by my crude math, it's 2.67% average. So perhaps the article is right.

    April contract also suggest an 75% cut in March. May contract suggest 25% cut on April 30th. What does it all mean? Who knows, but it looks like we'll see 2% fed funds by March.
  9. they're due for a pullback after the big run. i'm looking down the road. negative real rates are bullish for commodities
  10. S2007S


    :p :p :p
    #10     Mar 4, 2008