CME Predicts Future Fed Rate Cut Probability

Summary

Latest CME FedWatch data indicates a 95.2% probability that the Federal Reserve will maintain interest rates in June, with the likelihood of a hold remaining above 86% through September Zhitong. This shift follows reports of surging consumer prices and ongoing inflationary pressures from the conflict in Iran Fidelity+ 2. Major institutions like Morgan Stanley and Barclays have pushed their rate cut expectations into 2027, citing a resilient labor market and high PCE forecasts China Finance Online+ 2.

Impact Analysis

So the market is basically throwing in the towel on a summer pivot. Seeing a 95% hold probability for June and over 86% for September tells me the ‘higher for longer’ narrative isn’t just a threat—it’s the baseline now Zhitong. We’ve seen a massive shift since April when some were still pricing in a 45% chance of a June cut . The culprit? Sticky inflation and those energy spikes from the Iran conflict are clearly spooking the FOMC Fidelity+ 2.

What’s interesting is the divergence. While the CME tool still prices a slim chance of a late-year move, heavyweights like Barclays and Morgan Stanley are already pushing their first-cut calls into 2027 China Finance Online+ 2. They’re looking at that 3.8% PCE forecast and seeing zero reason for the Fed to blink given the labor market’s resilience Investing.com.

Bottom line: The ‘Goldilocks’ trade is dead for now. With the Warsh transition on the horizon and inflation refusing to behave, the risk is that even these small ‘cut’ probabilities are too optimistic. I’d lean into USD strength and stay cautious on long-duration bonds.