Investor expectations of a rate cut at the Federal Open Market Committee’s next meeting on Dec. 9-10 have gone from a split decision to a near certainty as of Dec. 1.
In addition, the Overnight Indexed Swap Market is now pricing in at least three more rate cuts by the end of next year, with the effective federal funds rate falling from its current 3.88% to 3.1% by October.
While we think that cutting the policy rate at the meeting would be premature given the upward pressure on inflation, which has exceeded the Fed’s 2% target for more than five years, there is still a growing probability that Fed officials will decide to cut the policy rate.
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