U.S. rates futures slip ahead of Powell's speech

[August 23, 2019]  By Richard Leong

NEW YORK (Reuters) - U.S. interest rates futures declined on Friday for a third straight day ahead of a highly anticipated speech by Federal Reserve Chair Jerome Powell, which traders will scour for clues on whether the central bank is ready to lower rates again.

A screen shows the numbers after the closing bell as traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., August 14, 2019. REUTERS/Eduardo Munoz

Powell is scheduled to speak at an economic symposium in Jackson Hole, Wyoming at 10 a.m. (1400 GMT).

Last month, the Fed decreased key borrowing costs for the first time since 2008, citing a softening global economy and sluggish domestic inflation.

Deteriorating manufacturing activity around the world, exacerbated by the trade spat between China and the United States, has underpinned bets that U.S. policymakers would opt to provide more stimulus to preserve the longest-ever period of domestic expansion, analysts said.

Some doubts about the timing and number of rate cuts have emerged this week.

On Thursday, Kansas City Fed President Esther George and Philadelphia Fed President Patrick Harker said the Fed need not deliver more economic stimulus now, following a rate cut for the first time in more than a decade in July.

Their hawkish views failed to shake traders' conviction that the Fed needs to lower rates again at its September meeting.

Traders now see another quarter-point cut as the Fed's most likely next move, according to CME Group's FedWatch tool. They no longer see an aggressive half-point cut as a possibility.

Early Friday, some nearby interest rates futures touched their lowest levels in more than two weeks.

They implied traders see a 93.5% chance of a quarter-point rate cut at the Fed's Sept. 17-18 policy meeting, up from 90% late on Wednesday and 77.7% a week ago, CME's FedWatch showed.

The fed funds contracts suggested traders saw nearly a zero chance of a half-point cut next month, little changed from late Thursday and down from 22.3% a week ago.

The fed funds complex also implied traders have reduced bets the Fed would cut rates three more times before the year-end.

(Graphic: U.S. Fed's next rate cut? link: https://fingfx.thomsonreuters.com
/gfx/editorcharts/USA-FED/0H001QEMK7MN/eikon.png)

(Reporting by Richard Leong; Editing by Bernadette Baum)

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