Friday, September 22, 2006

Rate Cut Probabilities Rise

by Bill McBride on 9/22/2006 02:32:00 PM

Every day the Cleveland Fed calculates the future Fed Funds Rate probabilities based on current market expectations.

Click on graph for larger image.

The Fed Funds Futures are indicating a pause at both the October and December FOMC meetings.

However, market expectations for a rate cut are now higher than expectations for an increase in December.

Perhaps the economy is slowing quicker than many obervers expected. Professor Roubini sure thinks so: U.S. Hard Landing And Recession Steaming Ahead: Now More Likely than a 70% Probability! See Roubini point 5:

5. The Fed will not just pause but stop hiking and then cut rates in the winter (by December or at the latest February). Markets were way behind the curve in their assessment of Fed policy as they were still debating the next hike rather than discussing when the Fed would ease.