Fed funds futures are mixed after paring gains from the ECB-inspired rally
Fed funds futures are mixed after paring gains from the ECB-inspired rally. The shorter dated contracts are now underwater, while late 2020 futures are modestly firmer. The market is still priced for a 25 bp rate cut from the FOMC next week, with about 55 bps in easing priced in by the end of the year, but those are off of the aggressive easing expectations from last month that showed about 30% risk for a 50 bp rate reduction in September and about 75 bps in cuts this year. The FOMC is on track for a quarter point move next week after the ECB's actions today, and as the conditions that predicated the July easing remain intact -- slowing in growth abroad, trade uncertainties, and low inflation. However, analysts suspect the Fed will move to the sidelines after that to assess the global economies, especially with signs the tariff war is ebbing, continued strength in the U.S. economy, and some indications of rising price pressures.