Traders are leaving open the option the Federal Reserve next week could cut its key interest rate by half a percentage point, though most on Wall Street think the bar for doing so is pretty high.
In the most likely scenario being priced in by markets, the Fed on Sept. 17 will lower the overnight funds rate by 25 basis points, or 0.25 percentage point. Odds for a quarter-point cut were around 88% on Monday afternoon, according to the CME Group’s FedWatch tool that measures odds of Fed action based on 30-day fed funds futures contracts.
However, that left open a remote chance that the central bank’s Federal Open Market Committee still could enact a half-point reduction, as it did at the September meeting in 2024. Chances of that were at 12% as traders disregarded any possibility the committee might stay put.
Market sentiment shifted even more toward Fed easing after Friday’s jobs report showed that nonfarm payrolls expanded by just 22,000 in August while the unemployment rate rose to a nearly four-year high of 4.3%.
“The soft August jobs report will help drive consensus across the committee that not only should rate cuts resume this month, but that further cuts will likely be appropriate in coming months,” Citigroup economist Andrew Hollenhorst said in a note after the payrolls release.
