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March 20 (Reuters) - U.S. interest rates traders on Wednesday saw the chances the Federal Reserve would cut borrowing costs in early 2020 as near 50-50 after the central bank slashed its forecast for future rate hikes.
The Fed also said it would end reductions to its massive balance sheet in September, prompted by signs of decelerating business activity around the world even as the domestic labor market has remained solid.
Federal funds futures, which reflect traders’ view on Fed policy, jumped after the Fed showed no hurry to raise rates further and halted its plan to shrink its holdings of Treasuries and mortgage-backed securities sooner than previously thought.
“Most of the rate rise is the rear-view mirror,” said Cliff Corso, executive chairman at Insight Investment in New York. “Patience means we are not going to move.”
At a press conference after a two-day policy meeting, Fed Chairman Jerome Powell pushed back on the notion the economy would require the support of a rate hike.
Some analysts and investors noted the Fed has not abandoned the possibility of a rate hike in 2020.
At every Fed policy meeting and public appearances by Powell since December, “the Fed has put forth a dovish surprise for the markets, and yet, they’ve disavowed any rate cut plans,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott in Philadelphia.
At 4:08 p.m. EDT (2008 GMT), the fed funds contract for January 2020 delivery implied traders are pricing in a 46 percent chance of a rate cut at the first Fed policy meeting of 2020 after peaking at 48 percent shortly after the release of the Fed’s latest statement and projections.
As of late Tuesday, traders saw a 32 percent probability of a quarter-percentage-point rate decrease to 2.00 percent-2.25 percent in early January 2020, according to the CME Group’s FedWatch program.
Fed funds futures for 2019 delivery hinted traders expected little action from the U.S. central bank this year.
Reporting by Ann Saphir and Richard Leong; editing by Leslie Adler, Chizu Nomiyama and G Crosse