Traders are entertaining the possibility of an interest rate cut by the end of the year now that the U.S. and Iran have agreed to a cease fire.
Odds for a reduction jumped Wednesday morning, hitting about 43%, according to the CME Group’s FedWatch tool, which uses 30-day fed funds futures contracts to compute market expectations for moves by the Federal Reserve.
Market pricing is implying a 3.5% rate in December for the overnight borrowing benchmark, compared to the current effective level of 3.64%.
Prior to the announcement, market-implied odds for a cut were just 14%.
Traders had expected the Fed would be hesitant to cut this year as the Iran conflict had sent energy prices skyrocketing, threatening the central bank’s efforts to get inflation back to its 2% goal. Previous to that, markets had expected multiple cuts this year in an effort to shore up the plodding labor market.
