The odds of a rate cut in September have fallen from ~76% at the start of the week to ~62% currently
The fall in expectations also sees 12% odds ahead of yesterday's meeting for rates sitting at the range of 1.50% to 1.75% in September being priced out completely as well.
However, looking ahead to next year, the pricing still suggests that the odds of more rate cuts are on the higher side. Yesterday, Fed funds futures show that three rate cuts are roughly priced in by 1H 2020 (forward rate of 1.50%) but as of today the forward rate sits at 1.60% for the 10 June 2020 decision.
That's not a significant shift in expectations despite what the Fed has communicated yesterday that this isn't the start of an aggressive easing cycle.
If anything else, Powell's comments can be taken in the sense that we could see possibly one more rate cut down the road. However, that will only come if we do see further deterioration in economic data and/or trade developments blow up.
In my view, the pricing is still too aggressive but I reckon in due time markets will start moving accordingly as we move from one meeting to the next.
As we gear towards the 18 September meeting decision, expect markets to be shifty on the pricing here upon the release of key US economic data. And we don't have to wait long for that as we will have the July non-farm payrolls report due tomorrow.
