Rates Traders May Be Thinking of a 1998-Style Fed Rate Reduction
- Bond market adds to rate-cut bets in face of record stocks run
- Weak inflation, global growth backdrop could serve as trigger
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Bond traders are gaining confidence that the Federal Reserve will see prevention as the best medicine, in an echo of its policy prescriptions from two decades ago.
The futures market has been moving back toward pricing in a full quarter-point Federal Reserve rate cut this year, even as U.S. and Chinese economic data show signs of improvement and American stocks rally to record highs. Luke Tilley of Wilmington Trust Investment Advisors and strategists at BMO Capital Markets interpret that as a sign the market has 1998 on its mind: That’s when the central bank pre-emptively lowered rates to keep events abroad from pushing the U.S. into recession.