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Traders see good chance Fed cuts again in December, skips in January

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November 7, 2024

Business Finance News

Federal Reserve Chair Jerome Powell speaks during a news conference following the Nov. 6-7, 2024, Federal Open Market Committee meeting at William McChesney Martin Jr. Federal Reserve Board Building in Washington, D.C., on Nov. 7, 2024.

Andrew Caballero-Reynolds | AFP | Getty Images

Expectations for a December interest rate cut remained strong after the Federal Reserve trimmed rates by a quarter percentage point in November, but market pricing is suggesting the likelihood of a “skip” in January.

On Thursday afternoon, the U.S. central bank lowered the federal funds rate, which determines what banks charge each other for overnight lending, to a target range of 4.5% to 4.75%.

Before the Fed released this decision at 2 p.m. ET, market pricing pointed toward a 67% chance of another quarter-point cut in December and a 33% chance of a pause that month, according to the CME FedWatch Tool.

The probability of a quarter-point December rate cut rose to more than 70% following the meeting, while the chances of a pause slipped to nearly 29%. Future rate probabilities found in the CME FedWatch Tool are derived from trading in 30-day fed funds futures contracts.

Meanwhile, the odds that the Federal Reserve would skip an interest rate cut in January was around 71%. This was slightly higher from 67% before the release of the Fed’s November decision on Thursday afternoon.

— CNBC’s Jeff Cox contributed to this report.

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DoubleLine’s Gundlach says expect higher rates if Republicans also win House

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3 hours ago

November 7, 2024

Business Finance News

Jeffrey Gundlach speaks at the 24th Annual Sohn Investment Conference in New York, May 6, 2019.

Adam Jeffery | CNBC

DoubleLine Capital CEO Jeffrey Gundlach said Thursday that interest rates could shoot higher if Republicans end up controlling the House, securing a governing trifecta that gives President-elect Donald Trump free rein to spend as he pleases.

Gundlach, a noted fixed-income investor whose firm manages over $96 billion, believes the higher government spending would require more borrowing through Treasury issuance, putting upward pressure on bond yields.

“If the House goes to Republicans, there’s going to be a lot of debt, there’s going to be higher interest rates at the long end, and it’ll be interesting to see how the Fed reacts to that,” Gundlach said on CNBC’s “Closing Bell.”

The race to control the House is undecided as of Thursday after Republicans clinched their new Senate majority. The Federal Reserve cut rates Thursday, and traders expect the central bank to cut again in December and several times in 2025.

Notable investors such as Gundlach have been voicing concerns about the challenging fiscal situation. Fiscal 2024 just ended with the government running a budget deficit in excess of $1.8 trillion, including more than $1.1 trillion dedicated solely to paying financing costs on the $36 trillion U.S. debt.

“Trump says he’s going to cut taxes … he’s very pro cyclical stimulus,” Gundlach said. “So it looks to me that there will be some pressure on interest rates, and particularly at the long end. I think that this election result is very, very consequential.”

If the Trump administration extends the 2017 tax cuts or introduces new reductions, it could add a significant amount to the nation’s debt in the next few years, worsening the already troublesome fiscal picture.

Still, Gundlach, who had predicted a recession in the U.S., said the Trump presidency makes such an economic downturn less likely.

“I do think that it’s right to see the Trump victory as being as reducing the odds for near-term recession fairly substantially,” Gundlach said. “Certainly, the odds of recession drop when you have this type of agenda being promoted in plain English for the past three months by Mr. Trump.”