June 14, 2019 / 2:47 PM / 2 months ago

MONEY MARKETS-U.S. rate-cut bets in June slip after solid retail sales data

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NEW YORK, June 14 (Reuters) - U.S. interest rates futures fell on Friday, reversing their earlier gains, as traders pared their bets that the Federal Reserve would lower key lending rates next week, following data that showed solid growth in domestic retail sales in May.

Many Wall Street economists expect Fed policymakers, who are set to meet next Tuesday and Wednesday, will signal they are prepared to decrease borrowing costs later this year to preserve the current stretch of economic expansion, which would be the longest on record this summer.

The Commerce Department said on Friday retail sales rose 0.5% in May as households bought more motor vehicles and a variety of other goods. Figures for April were revised higher to show retail sales gaining 0.3%, instead of dropping 0.2% as previously reported.

“A solid increase in May retail sales, and substantial upward revisions to sales in April, reaffirm our expectation that consumption will be the primary driver of growth in the near term,” Citi economists Andrew Hollenhorst and Veronica Clark wrote in a research note.

At 10:11 a.m. (1411 GMT), federal funds futures implied traders saw a 24% likelihood the Fed would cut the target range on short-term interest rates by a quarter point to 2.00%-2.25% at its upcoming meeting, down from 31% shortly before the release of the government’s retail sales report in May, CME Group’s FedWatch program showed.

The implied chance of a rate cut next week was 28% late on Thursday.

Fed funds contracts suggested traders are betting on an 88% likelihood of a rate decrease in July.

The fed funds complex implied traders are pricing in a relatively high 77% possibility that the Fed would lower short-term rates by 75 basis points by year-end, according to the CME FedWatch too.

Reporting by Richard Leong Editing by Bernadette Baum

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