Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : The Amateur Traders Corner -- Ignore unavailable to you. Want to Upgrade?

To: Tom Hua who wrote (11611)	7/11/2001 12:05:52 PM
From: $Mogul	Respond to of 19633

FED TALK: The Fed Fund futures market appears to be raising the odds of an intermeeting rate cut. The August Fed Funds contract is currently trading at a rate of 3.645%, below the level that fully prices in a 25 basis point rate cut at the Aug. 21 FOMC meeting. If the effective Fed Funds rate averages 3.75% (the current target) through Aug. 21 and then averaged 3.5% thereafter, the average for the month should be about 3.67%. So it could be said the August contract is pricing in more than a 100% chance of a 25 basis point rate cut in August, which suggests either a 50 basis point move or an intermeeting move is beginning to be priced in. Of the two, an intermeeting move seems more likely (though still improbable) since the Fed has slowed the pace of its easing with the June move and it would likely take a significant dislocation in the market to prompt anything more than a 25 bps move at the August meeting. In such a scenario, the Fed would be more likely to go ahead and cut rates promptly rather than wait for August. The September contract has dropped to 3.53%, or about an 88% chance that the Fed cuts rates by 25 basis points at the August meeting. While the September contract is likely being influenced by other factors as well, such as quarter-end, the fact that the August and September contracts price in different probabilities for a move at the August meeting suggests the August contract sees some possibility of an intermeeting move. Until recently, the market saw the chances of an intermeeting move as slim to none