Fed doves overwhelm hawks, interest rate cut expectations rise within days

Investors are ramping up bets that Federal Reserve policymakers will cut interest rates again next month, removing doubts that they were leaning against a cut last week and paving the way for a rally in US Treasuries. New positions in futures contracts linked to the Fed's base rate have surged over the past three sessions, with the January contract setting a record for one-day trading volume last week. Markets are pricing in a probability of a 25 basis point cut at the Fed's December meeting, up from 30 per cent a few days ago. The shift in interest rate expectations began last week with the delayed release of September employment data, which painted a mixed picture of the economy. That expectation was then reinforced on Friday when New York Fed President John Williams said he saw "near-term" scope for rate cuts in the context of a weak labour market. "There are serious divisions within the Fed, but it looks like the doves have trumped the hawks," said Tracy Chen, portfolio manager at Brandywine Global Investment Management.