Fed funds futures are repricing for a less dovish outlook on the FOMC
Fed funds futures are repricing for a less dovish outlook on the FOMC. The improvement in U.S. and Chinese data and ongoing talk of progress on trade have laid to rest recession fears, which in turn are trimming the likelihood for a Fed rate cut. A couple of weeks ago, when the 3mon-10year spread inverted, Fed funds futures were suggesting a 25 bp easing this year. That view has been dissipating, and it's now the case that the implied rate shows only 10 bps of easing by next January. A full 25 bp rate cut to 2.125% is not priced in until Q3 2020. Analysts continue to believe that an acceleration in growth and stabilizing inflation in the 2% target range will give the FOMC cause to tighten 25 bps in Q3 after the Fed ceases QT in September.