CME Releases Data on Future Fed Rate Cut Probabilities

Summary

According to CME’s FedWatch, the probability of a 25 basis point rate cut by the Fed in January is 18.8%, with an 81.2% chance of rates remaining unchanged. By March, the probability of a cumulative 25 basis point cut is 46.9%, with a 44.7% chance of no change, and an 8.5% chance of a 50 basis point cut.36Kr

Impact Analysis

So, the CME’s latest data shows a slight decrease in the probability of a January rate cut compared to earlier in December, where it was around 24.4%QQ News. This suggests that while the market still sees a significant chance of a rate cut by March, the immediate expectations have cooled a bit. This could be a reaction to recent economic data or Fed communications that have tempered rate cut expectations. For investors, this means a potential shift in asset allocation strategies, particularly in fixed income and equities. If the Fed does cut rates, we might see a rally in rate-sensitive sectors like tech and utilities. However, if the Fed holds steady, there could be volatility as markets adjust expectations. Watch for movements in bond yields and the dollar as these probabilities evolve.