9:43 AM
FED TALK: Fed Fund futures are fully pricing in another 25 basis point rate cut at the Nov. 6 FOMC meeting. The November contract is currently pricing in a rate of 2.28%, down from 2.325% at Wednesday's close. An effective Fed Funds rate of 2.5% (the current target) through Nov. 6 and 2.25% through the rest of the month would result in an average for the month of 2.30%. In other words, a 25 basis point cut is fully priced into the November contract at 2.30% so the current rate of 2.28% prices in a 25 basis point cut and then some. But as we've noted, there is the continuing possibility that the effective Fed Funds rate will trade significantly below the target. On Wednesday, for example, the effective Fed Funds rate was 2.27%, nearly a quarter-point below the current target. This is probably behind some of today's move in Fed Fund futures, although the cash market is trading right at the 2.50% target so far today. But the sharp rise in jobless claims is the larger factor, and it appears to have convinced the market that at least a 25 basis point rate cut in November is a given. The market also continued to move closer to pricing in a total of 50 basis points in cuts. The February 2002 contract, for example, is trading at 2.10%, down from 2.14% Wednesday, suggesting a little better than a 50% chance that the Fed cuts rates to 2.00% by the January 29/30 meeting. |
