August 23, 2019 / 5:38 PM / a month ago

MONEY MARKETS-Powell's speech, Trump's tweets stoke U.S. rate-cut bets

(Updates market action, adds quote)

By Richard Leong

NEW YORK, Aug 23 (Reuters) - U.S. interest rates futures jumped on Friday as Federal Reserve Chair Jerome Powell’s hint of more rate cuts and U.S. President Donald Trump’s tweets on trade stoked bets on a further decline in key borrowing costs.

Powell, in a highly anticipated speech at an economic symposium in Jackson Hole, Wyoming, said the Fed must “look through what may be passing events, focus on how trade developments are affecting the outlook, and adjust policy to promote our objectives” of 2% inflation and strong employment.

“Powell’s Jackson Hole speech did not mention a mid-cycle adjustment and investors could take that as a hint that he is probably closer to an easing cycle than just seeing a couple of rate cuts,” said Edward Moya, senior market analyst at OANDA in New York.

Last month, the Fed lowered key borrowing costs for the first time since 2008, citing a softening global economy and sluggish domestic inflation. Fed officials suggested the move was not the start of a protracted easing cycle.

Expectations of more rate cuts grew after Trump sent a series of tweets in response to Powell’s speech and China’s unveiling of retaliatory tariffs on U.S. goods.

“Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA,” Trump said on Twitter.

Trump’s call came as manufacturing activity around the world is deteriorating, exacerbated by the U.S.-China trade spat.

“It has certainly heightened concerns about trade and its drag on global growth. It has heightened chances of a recession,” said Craig Bishop, lead strategist of the fixed income group with RBC Wealth Management in Minneapolis.

Traders now see another quarter-point cut as the Fed’s most likely next move, according to CME Group’s FedWatch tool. St. Louis Fed President James Bullard said on Friday there would be a “robust debate” on a steeper half percentage point reduction.

Fed funds contracts implied traders see a 90% chance of a quarter-point rate cut at the Fed’s Sept. 17-18 policy meeting, little changed from Thursday but up from 77.7% a week ago, CME’s FedWatch showed.

Trump’s tweets revived a bit bets the Fed would undertake an aggressive half-point rate decrease at its September policy meeting, analysts said.

The fed funds complex implied traders see a roughly 10% chance of a half-point rate cut next month, compared with zero late on Thursday.

Reporting by Richard Leong; Editing by Andrea Ricci

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