(Updates market action, adds background, graphics)
NEW YORK, June 25 (Reuters) - U.S. interest rates futures fell on Tuesday as traders reduced their bets the Federal Reserve would lower key lending rates by half a percentage point next month following comments on such a move from St. Louis Fed President James Bullard.
Bullard is seen as one of the most dovish Fed officials, who has voiced concerns that the central bank has become restrictive with the reduction of its balance sheet and its interest rate hikes last year.
Bullard is a voting member of the policy-setting Federal Open Market Committee this year. He argued for a rate cut at last week’s policy meeting and dissented in the decision to leave the Fed’s target range on rates at 2.25%-2.50%.
Bullard’s remarks on Tuesday struck traders as less dovish than what he said earlier this month.
“Just sitting here today, I think 50 basis points would be overdone,” Bullard said in an interview with Bloomberg Television. “I don’t think the situation really calls for that, but I would be willing to go 25 (basis points).”
On June 3, Bullard voiced the need for a rate cut soon due to the rising risk to the current economic expansion from global trade tensions and sluggish domestic inflation.
Interest rates futures suggest traders now expect a greater probability that the Fed would lower borrowing costs by a quarter-point rather than by a half-point in about five weeks.
At 2:30 p.m. (1830 GMT), federal funds futures suggested traders saw a 64% chance of a less aggressive 25 basis points rate-cut at its July 30-31 policy meeting, up from 57% late on Monday, according to CME Group’s FedWatch program.
The fed funds complex implied traders saw a 36% chance of a bold 50 basis-point rate-cut next month, down from a 42% likelihood late on Monday.
Reporting by Richard Leong; Editing by Cynthia Osterman and Chizu Nomiyama