(Bloomberg) -- Fed funds futures contracts extended their rally and are now indicating more than half a percentage point of interest-rate cuts this year by the U.S. central bank.
While the effective fed funds rate is at 2.39%, the rate implied for the end of 2019 by the January futures contract dropped 15 basis points on Friday to 1.855%. Central bank shifts are often done in increments of 25 basis points, and current pricing implies two cuts of that size by the end of 2019.
The shift comes amid a worldwide rally in bonds after U.S. President Donald Trump announced his plan to levy tariffs on imports from Mexico, adding further fuel to concerns about global trade tensions. Strategists at several U.S. primary dealers have also changed their forecasts to predict cuts this year from the Federal Reserve.
“Even if a deal is quickly reached with Mexico, which seems plausible, the damage to business confidence could be lasting, with consequences that might still require a Fed response,'' JPMorgan Chase & Co. chief U.S. economist Michael Feroli said in a note to clients on Friday.
--With assistance from Rich Miller and Craig Torres.
To contact the reporter on this story: Benjamin Purvis in New York at bpurvis@bloomberg.net
To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net, Alexandra Harris, Dan Wilchins
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