June 3, 2019 / 8:24 PM / 4 months ago

MONEY MARKETS-Traders build bets on multiple U.S. rate cuts

(Updates market action, adds graphics)

NEW YORK, June 3 (Reuters) - U.S. short-term interest rates futures jumped on Monday as traders increased their bets the Federal Reserve would embark on a series of rate cuts starting next month to avert a recession due to growing global trade conflicts and sluggish inflation.

St. Louis Federal Reserve James Bullard said on Monday a rate decrease may be “warranted soon.”

Bullard’s view of a likely imminent rate cut came after the Institute for Supply Management said earlier Monday its gauge of domestic manufacturing activity fell to its weakest level in 2-1/2 years in May.

In late U.S. trading, federal funds futures implied traders saw about a 67% chance the U.S. central bank would reduce key short-term borrowing costs by a quarter point to 2.00%-2.25% at its July 30-31 policy meeting. This was higher than 53% on Friday and 18% a week earlier, CME Group’s FedWatch program showed.

Fed funds contracts suggested traders are pricing in an 86% chance of at least one more rate decrease, in addition to the possible one in July, and a 55% chance of at least two more rate cuts by year-end.

Going into mid-2020, the fed funds complex implied traders expect a 24% probability the central bank would reduce key borrowing costs to 1.00%-1.25% or lower, which is more than 1 point lower than its current target range of 2.25%-2.50%.

Fed policymakers will next meet on June 18-19.

Reporting by Richard Leong Editing by Tom Brown

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