JPM - Traders price in greater likelihood of three rate cuts by end of 2023

2023-05-02 12:43:02 ET

Amid renewed concerns about the health of the regional banking sector, traders boosted the chances of multiple interest-rate cuts by the end of this year.

Federal-funds futures traders now see a 59.3% probability that the rate-setting Federal Open Market Committee's benchmark rate target range will fall to 4.25%-4.5% or lower by the Dec. 13 meeting, compared with a 28.4% chance the day prior, according to CME's FedWatch tool .

After accounting for what's expected to be a quarter-point hike on Wednesday, taking the target range to 5.0%-5.25%, the fed-funds market is pricing in at least three 25-bp rate cuts in 2023. In the midst of earnings season, a raft of regional banks that published disappointing results pointed to higher liability/deposit costs as a result of higher short-term rates.

Shares of regional lenders sold off markedly, as traders weighed the second-largest bank failure in U.S. history. On Monday, the Federal Deposit Insurance Corporation seized First Republic Bank ( FRC ) and sold most of its assets to JPMorgan Chase ( JPM ), marking the fourth bank to collapse since early March.

More on the Bank Crisis

• FDIC proposes changes to deposit insurance system in wake of bank failures

• Treasury Department says First Republic resolution encouraging - report

• KRE: The Banking Crisis Has Slowed, But It Cannot Be Stopped

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