US rate futures bolster September, October rate cut chances after Fed decision

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By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) -Futures on the federal funds rate, which measure the cost of unsecured overnight loans between banks, raised the odds the Federal Reserve would resume cutting interest rates at the September meeting, with a roughly 64% probability.

Prior to the Fed’s decision on Wednesday to keep rates unchanged in the 4.25%-4.50% target range, the probability of a rate cut stood at 58%. Traders also increased the chances for another cut at the October meeting.

In its statement, Fed policymakers signaled borrowing costs are still likely to decline this year, but the Fed slowed the overall pace of expected easing amid the Trump administration’s tariff plans.

U.S. rate futures also implied 50 basis points in rate cuts in 2025, from 46 bps before the Fed statement. That was in line with the Fed’s forecast released on Wednesday of half a percentage point of rate reduction this year, unchanged from the U.S. central bank’s March and December projections.

The Fed also slightly slowed the pace from 2025 to a single quarter-percentage-point cut in 2026 and in 2027.

“Much like the tariff talk, the Fed has pivoted to a more of a kick the can down the road narrative as uncertainty may have diminished, but it’s still elevated according to their terms,” wrote Jay Woods, chief global strategist, at Freedom Capital Markets, in emailed comments.

“Overall, the Fed’s dual mandate is still in question. While nothing in the data has changed significantly, the inflation outlook rising with growth slowing does not bode well for any cuts in the foreseeable future.”

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Chris Reese and Diane Craft)