Fed Dovishness Trumps Hawkishness, Rate Cut Expectations Surge in a Matter of Days

On November 26th: Investors are enhancing their wagers, anticipating that Federal Reserve policymakers will lower interest rates once again during the next month's rate decision. This action has dispelled the doubts from last week that inclined towards no rate cut and has cleared the path for an increase in US Treasury yields. The open interest in futures contracts linked to the Fed's benchmark interest rate has surged over the past three trading days, and the January contract set daily volume records last week. Currently, market pricing indicates that the probability of a 25-basis-point rate cut at the Fed's December meeting is approximately 80%, which is higher than just 30% a few days ago. The shift in rate expectations started with the delayed release of September's employment data last week, which presented a mixed economic picture. New York Fed President Williams then stated last Friday that, against the backdrop of weakness in the labor market, he foresaw "near-term" room for a rate cut, further strengthening this expectation. "There is a significant division within the Fed, but it appears that the doves have prevailed over the hawks," said Tracy Chen, the Portfolio Manager at Brandywine Global. (Golden Finance)