105% Chance Fed Cuts 11 Dec 53% Odds Of 50 Basis Points
Rate cut odds decline as Fed's Kroszner's speech offsets weak indus. prod. data
11.16.07, 10:08 AM ET
NEW YORK (Thomson Financial) - Odds of further rate cuts fell Friday, despite a surprise drop in October industrial production, after Federal Reserve Governor Randall Kroszner said forthcoming 'downbeat' economic data will not necessarily lead to another interest rate cut.
December fed funds futures fell 0.015 to 95.67, which implies a 53% chance that the Fed will lower its target for overnight rates to 4% from 4.5% after its next policy setting meeting on Dec. 11. Late Thursday, the odds of a 50 basis point rate cut were 57%. The odds of a 25 basis point cut fell to 105% from 115%.
February fed funds futures are now pricing in a 78% chance that overnight rates will be at 4% after the Fed's meeting in late January (Jan. 29/Jan. 30), compared with an 83% chance late Thursday.
'A sequence of data releases consistent with the rough patch for economic activity that I expect in coming months would not, by themselves, suggest to me that the current stance of monetary policy is inappropriate,' Kroszner said in a speech in New York.
Earlier, the government data showed that industrial production fell 0.5% in October, compared with the median estimate of economists surveyed by IFR Markets of a 0.1% increase. Capacity utilization fell to 81.7 from a revised 82.2 in September, vs. economist forecasts for a dip to 82.0.