Market sees nearly 50% chance of a Fed rate cut by the end of January 2020

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Markets are becoming more convinced that the Federal Reserve will be more accommodative on interest rates.

The fed funds futures market is assigning a 48.9 percent probability of at least one rate cut by Jan. 29, according to the CME’s FedWatch tool, which has been a reliable gauge of the Federal Open Market Committee’s actions.

Futures contracts are also implying a 39 percent probability of a rate decrease by Dec.11, up from only 23 percent before the Fed’s policy decision at 2 p.m. on Wednesday.

The Fed left interest rates unchanged on Wednesday and also indicated that no more hikes will be coming this year. The central bank’s policymaker took a sharp dovish turn from policy projections just three months earlier when they estimated two rate hikes would be appropriate in 2019.

The move came along with reduced expectations in GDP growth and inflation and a bump higher in the unemployment rate outlook. The central bank also set the end of its balance-sheet reduction for September. The Fed said it will begin in May to taper the amount of proceeds it allows to roll off each month and will end the program in six months.

The CME computes the probability of a rate hike by taking the end-month futures contract, subtracting the level at the beginning of the month, and dividing that by 25 basis points, which is the assumed level of each rate hike.

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