Will the Fed lower interest rates in July? Here's what traders think

A divided Federal Reserve on Wednesday paved the way for an impending rate cut, while formally indicating that a reduction in borrowing costs won’t happen until 2020.

Traders think it could happen even sooner.

According to the CME’s FedWatch Tool, which analyzes the probability of rate moves for upcoming Fed meetings, traders think there’s a 100 percent chance of a cut during the central bank’s July meeting. About 59.5 percent think policymakers will lower interest rates to a target range of 2 percent to 2.25 percent, while 40.5 percent believe the cut will be larger, moving to a target range of 1.75 percent to 2 percent.

Policymakers at the U.S. central bank said at the conclusion of their two-day meeting this week that they expect one rate cut next year and one rate hike in 2021. However, the "dot plot" of FOMC members' expectations revealed that the Fed was just about evenly split on the interest rate decision: eight members favor one rate cut this year; eight prefer for rates to stay unchanged; and one wants a rate hike.

Still, Powell suggested during a press conference that the possibility of a rate cut in the near-term was not off the table.

“Many participants now see the case for somewhat more accommodative policy has strengthened,” Powell said in Washington, D.C.

The Fed also changed its statement, dropping the word “patient” from its language, a notable and dovish shift, and acknowledging that inflation is “running below” its 2 percent target.

“In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective,” the statement said.


The benchmark federal funds rate has remained between 2.25 percent to 2.5 percent since December, when the Fed voted to hike rates for the fourth time in 2018 -- much to the ire of President Trump.