February 27, 2020 / 2:38 PM / a month ago

Fed rate cut next month? Traders are betting on it

Feb 27 (Reuters) - The U.S. central bank will move to reduce borrowing costs as soon as next month to cushion the world’s biggest economy from the impact of the coronavirus, traders of futures contracts tied to the Federal Reserve’s policy rate are now betting.

Traders now see a nearly 60% chance of a rate cut at the Fed’s March meeting, according to CME Group’s FedWatch, which translates fed funds futures pricing into traders’ monetary policy expectations.

That’s up from 33% on Wednesday, before U.S. President Donald Trump appointed Vice President Mike Pence to head public health efforts to contain the virus’ spread and leaders around the world rallied their nations to prepare for an epidemic of the flu-like illness that originated in China.

A second Fed rate cut is now priced in for June, and a third one in September.

So far, Fed officials have taken a wait-and-see approach, with none suggesting a rate cut is imminent. The Fed’s next policy-setting meeting is March 17-18.

New infections around the world in the past 24 hours surpassed those in mainland China, where spread of the pathogen emerged is on the decline after an aggressive containment campaign.

Globally there have been about 80,000 infections and 2,800 deaths, the vast majority of which have been in China, but reports in recent days of infections in the U.S. and elsewhere that can’t be traced to China suggest the virus may be much more diffficult to contain. (Reporting by Ann Saphir Editing by Chizu Nomiyama)

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