Fed Meeting Minutes: Option Pricing Implies One to Two Rate Cuts Within the Year

BlockBeats News, May 29th. The Fed meeting minutes indicated that the benchmark policy path, based on option-implied prices (representing the market's mainstream expectations), shifted slightly downward during this period, suggesting a potential 1 to 2 interest rate cuts by the end of the year (25 basis points each time) — slightly more than the expectations at the March FOMC meeting. The option-implied probability distribution of year-end interest rates has shifted to the left, with significantly increased downside risks. As the market perceives an intensified downside risk to the policy rate, the implied expected policy path in the futures market shows a larger downward adjustment, indicating around 3 rate cuts before the year-end. However, the median benchmark interest rate path from market expectation surveys has not changed much, still suggesting 2 to 3 rate cuts this year. Nevertheless, the survey indicates that the divergence among respondents on the most likely policy path is increasing. (FX678)