As Fed Hawks Press their Case, Traders bet Against December Cut

• As U.S. agencies on Friday began announcing plans for releasing economic data delayed by the government shutdown, a trio of U.S. central bankers reiterated their concerns about inflation, while the Fed's most dovish policymaker said economic data in hand argued for another rate cut.
• In the meantime, financial markets placed their bets. Late Friday, short-term interest-rate futures, the best real-time indication of trader sentiment on Fed policy, reflected a 60.0% chance that the central bank will not follow its back-to-back rate cuts in September and October with another one in December.
• Market-based odds on that same 60.0% probability were circulating about 24 hours earlier, and before that had been heavily in favour of a rate cut for several weeks since the Fed's October 29 decision. The duelling policymaker views and shifting market bets underscore how hotly contested the decision at the Fed's December 9-10 meeting may be.
• Additionally, traders' views could just as easily reverse next week when government statistics agencies begin publishing economic data for the first time in a month and a half, and more Fed policymakers, including the influential and dovish Fed Governor Christopher Waller, weigh in with their perspectives.
• Kansas City’s Schmid, Dallas’ Logan, and Cleveland’s Hammack reiterated resistance to another rate cut in December, citing insufficient evidence of faster-than-expected disinflation, only gradual labour-market cooling, and risks to the Fed’s 2% credibility, while Governor Miran argued for further easing (and had even pushed for a bigger cut in October). Chair Powell added that policy must proceed cautiously amid limited data visibility from the government shutdown, stressing that a December cut is far from assured, a view traders appeared to reflect by week’s end.

(Source: Reuters)