Perhaps saying that the markets still “expect” the Fed to cut rates isn’t putting the right coloration on Fed futures prices, which imply another reduction in December. Comments in the press prior to the last FOMC meeting indicated that a big factor in the Fed’s thinking was that it didn’t want to upset markets. if true, that is tantamount to saying the Fed is afraid to contradict the expectations implicit in Fed fund futures.
So in light of the Fed’s cravenness, the better phrasing might be “the markets demand that Bernanke cut.”
Federal Reserve Chairman Ben S. Bernanke failed to convince investors that there’s no need for further interest-rate cuts soon.
Bernanke told lawmakers in Washington yesterday that officials already expect the economy to “slow noticeably” this quarter, and warned of “upside risks” to inflation. Futures traders focused on his growth comments, increasing the odds of a quarter-point cut in the benchmark rate on Dec. 11 to about 90 percent, from 70 percent a day earlier.
The speculation may complicate Fed decision making, raising the risk of a sell-off in stocks and bonds should officials keep the main rate at 4.5 percent.