According to the CME Group FedWatch Tool, markets are now pricing a 42.4% probability of a 25 bps Fed rate cut in December vs 39% last week. According to the tool, the probability of the target rate remaining unchanged in 2.25%-2.50% by December is only 30%.
China’s decision to hike tariffs on $60 billion worth of U.S. goods seems to be the reason behind this change as it makes the Fed more likely to respond to a possible economic slowdown in the U.S. by making a dovish shift in its policy outlook.
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