Fed funds futures continue to price in a rate cut by year end
Fed funds futures continue to price in a rate cut by year end. However, the market is little changed today after Monday's big rally. Implied rates are nearly fully priced for a 25 bp easing in Q4 and is more than fully priced for a move by Q1, with October at 2.18% and January at 2.085%. Meanwhile, call options are showing increased demand as insurance is taken out against several rate cuts this year. Analysts are expecting the FOMC to remain on hold this year based on decent growth and a strong labor market. However, trade/tariff worries, and a self-fulfilling tailspin in equities, alongside low inflation could result in an easing from the FOMC, particularly if the Committee shifts to an average inflation goal.