Traders adjust interest rate cut forecasts in response to U.S. inflation data, estimating about a 50% chance of a third rate cut this year

The inflation rate in the United States announced last Friday (13th) for last month was 0.2%, lower than expected, marking the smallest increase since July of last year, prompting traders to adjust their expectations for interest rate cuts by the Federal Reserve this year.

According to Bloomberg, traders have priced in an interest rate cut by the Federal Reserve this year at about 63 basis points, equivalent to a roughly 50% chance of a third rate cut before the end of the year. Traders had priced in a cut of 58 basis points on Thursday (12th) last week. According to the Chicago Mercantile Exchange's interest rate futures, there is a 48% chance that interest rates will be at least 0.75 percentage points lower than the current level (i.e., three cuts or more) by the end of this year.

Earlier, traders had stopped fully expecting a 25 basis point cut in mid-year based on last month's employment data, shifting their expectations to a cut in July. Major Wall Street firms that previously predicted a cut next month have also pushed their expectations to the second half of this year