US rate futures imply more easing this year after Fed's 50-basis-point cut

NEW YORK (Reuters) -Futures on the federal funds rate, which measures the cost of unsecured overnight loans between banks, priced on Wednesday about 74 basis points of additional interest rate cuts by the Federal Reserve by the end of this year, LSEG calculations showed.

This development followed a decision by the Fed earlier in the day to cut interest rates by 50 bps, or half a percentage point, a larger-than-usual reduction amid growing unease about the health of the U.S. labor market.

Rates futures implied about 113 basis points in cuts before the end of this year before the Fed's policy decision.

U.S. rate futures are also betting the Fed will reduce rates by 25 bps at its Nov. 6-7 meeting, with a 64% probability on the quarter-percentage-point move and a 36% chance on a 50-bp cut.

Expectations for interest rates by the end of next year remained roughly unchanged, with traders expecting some additional 190 basis points of cuts by the end of 2025, which is in line with 240 basis points in cuts expected prior to the Fed's rate cut on Wednesday.

That implies a benchmark rate of 2.9% by the end of 2025, which is below the 3.4% rate envisioned by Fed officials in updated projections that were released on Wednesday.

(Reporting by Gertrude Chavez-Dreyfuss and Davide Barbuscia; Editing by Paul Simao)

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