July 18, 2019 / 7:38 PM / 5 months ago

MONEY MARKETS-Traders add to bets on 50 bps rate cut after Fed's Williams remarks

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NEW YORK, July 18 (Reuters) - U.S. interest rates futures prices jumped on Thursday as traders piled on bets that the U.S. central bank will lower interest rates by an aggressive 50 basis points at its upcoming policy meeting to counter risks from trade disputes and sluggish inflation.

The rally in rates futures came in response to comments from New York Federal Reserve President John Williams, who said policy-makers need to add stimulus early to deal with too-low inflation when rates are near zero and cannot wait for economic disaster to unfold.

Taking quick action to cut rates in the face of “adverse economic conditions,” and keeping rates lower for longer, Williams said “should vaccinate the economy and protect it from the more insidious disease of too low inflation.”

Williams’ comments at a central banking conference in New York echoed other U.S. central bank officials in recent days including Fed Chairman Jerome Powell, who have hinted the central bank was prepared to reduce short-term borrowing costs.

Williams “not only advocated a cut in this speech, he seemed to advocate a 50 (basis point) cut, using the same ‘ounce (of) prevention’ logic Powell used in his June press conference,” FTN Financial chief economist Chris Low wrote in a research note.

At 3:10 p.m. EDT (1910 GMT), federal funds futures implied traders now see nearly a 63% chance the Fed would lower key lending rates by a half percentage point at its July 30-31 policy meeting, up from 34% late on Wednesday, according to CME Group’s FedWatch program.

Reporting by Richard Leong Editing by Chizu Nomiyama

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