The market is betting on interest rate cuts - the chances of a Fed decision in December exceed 80%

Market participants’ expectations regarding monetary policy have changed significantly. According to Golden Ten data, during the last three trading sessions, there has been a substantial increase in open interest in futures linked to the Federal Reserve’s reference rate. The market valuation suggests that the chance of a 25 basis point cut at the December Fed meeting is about 80%.

This shift in sentiment in financial markets occurs as a result of the delayed release of September labor market data. Investors have dismissed earlier doubts and are increasingly betting on further easing of monetary policy by the Federal Reserve. New York Fed President Williams emphasized that, in the context of a weakening labor market, there is a “short-term” room for interest rate cuts.

The growing readiness to cut interest rates opens the prospect of strengthening the bond market. The shift in expectations in the futures market indicates that market participants now assign a higher probability to a more dovish scenario from the Fed regarding monetary conditions in the coming months.