Fed funds futures traders pull back on 2023 rate-cut expectations as markets move on First Republic rescue efforts

Traders React to First Republic Bank News

Following news that several major banks were in discussions to support First Republic Bank, traders have reevaluated their expectations for the number of rate cuts by the Federal Reserve for the remainder of the year.

Initially, many traders were predicting a full percentage point of reductions to the federal funds rate, but those expectations have now been tempered. As of this writing, Fed funds futures traders envision only a 54.2% probability that the Fed will lower its main interest-rate target to between 4.25% and 4.5% by the end of December, implying only a quarter-point of rate cuts relative to the current range of 4.5%-4.75%. Additionally, the chances of a quarter-point cut as soon as next Wednesday have risen significantly from 54.6% to 84.4%, according to the CME FedWatch Tool.

The news regarding First Republic Bank has clearly exerted an influence on the market’s perception of the Fed’s monetary policy. The 6-month through 30-year Treasury yields have all increased, with traders unsure of the implications of the news.

First Republic Bank Background

First Republic Bank is a leading private bank and bank holding company with headquarters in San Francisco. It was founded in 1985 and has grown to become a major business enterprise, with over $127 billion in client assets at the end of 2020. The bank’s primary focus is on offering personalized banking services to high-net-worth individuals, businesses, and institutions. Its offerings include a wide range of deposit services, loans, wealth management, and trust services.

Why the First Republic Bank News Matters

As one of the country’s leading private banks, First Republic has an extensive impact on the overall economy. As the news of the bank’s struggles became public, traders began responding, with many predicting a sharp drop in interest rates to stimulate the economy. However, given the likelihood of large banks stepping in to shore up First Republic, there is less concern about the economy’s overall health.

The critical fact is that the news has reminded investors of the significant volatility of the financial markets. A sudden shift or shock to the economy can cause ripple effects throughout the financial world. Even news that might have a limited impact on the economy overall, such as this First Republic story, can generate significant attention and influence the markets.

Impact on the Future of the Economy and the Markets

The market’s response to this news underscores the formidable role played by traders in shaping the overall economic outlook. As mentioned, the likelihood of a full percentage point cut in the Fed funds rate has already decreased, and overall expectations for the intervention of the Fed may be similarly adjusted.

While the bank has an important impact on the economy, the fact that investors are paying such close attention is a positive indication of the markets’ overall health. The focused attention of traders keeps volatility in check and ensures that the overall system continues to operate smoothly.


The news of First Republic Bank’s struggles has prompted a rapid response in the financial markets, with many traders adjusting their predictions of the Federal Reserve’s rate cut plan. While the odds of a rate cut remain high, traders are now anticipating fewer reductions than initially expected. The fact that the news about the bank has captured so much attention underscores the markets’ sensitivity to events that could potentially impact the overall economy.

However, it’s important to remember that even seemingly minor events can have outsized effects on the markets. As always, traders and investors must remain vigilant in their attention to economic news and be prepared to adjust their expectations as warranted.


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