Fed Futures Show Drop After Goods Report

U.S. interest rate futures slipped Tuesday, extending their earlier decline, after a robust December durable goods reportreduced expectations of a an aggressive rate-cut from the Federal Reserve Wednesday.

The February federal funds contract was down 3.5 at 96.9300 from 96.9550 shortly before the durable goods data and 96.9650 at Monday's close.

The decline in the February contract suggested traders now see an approximately 74 percent chance the Fed will lower the federal funds target rate by half a point to 3.00 percent at the end of its two-day meeting.

This compared with an implied 82 percent chance before the durable goods report and an 86 percent chance at Monday's close.

The government reported durable goods orders jumped 5.2 percent in December, far more than the 1.5 percent increase forecast among economists polled by Reuters.

"What it does show is that while there may be some slowdown around the globe, maybe it is not slowing enough to hurt durable goods," said Linda Duessel, market strategist at Federated Investors in Pittsburgh.