Bets rise on a bigger Fed rate cut next week

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Editors note: It is Paramount Group that suspended its dividend, not Paramount Global

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The mood on Wall Street has shifted as traders see a higher likelihood that the Fed will opt for a larger, half percentage point rate cut next week, shifting expectations that had previously settled around a more modest one-quarter cut.

The odds of a 0.5% reduction jumped amid reports by the Financial Times and The Wall Street Journal that the size of the Fed’s Sept. 18 decision will be a close call. Adding to the debate, influential former New York Fed president Bill Dudley said there’s a “strong case” for a deeper cut.

During morning trading on Friday, the likelihood of a more sever cut of 50 basis points stood at 43%, while the chances of a more traditional 25 basis point reduction registered 57%, according to the CME FedWatch tool. The odds were closer to 50-50 earlier in the trading session, but the likelihood of a larger cut was still much higher on Friday compared to a day ago, which was 28% and to the forecast a week ago of 30%.

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