Federal Reserve Rate Cut Expectations: What is the Actual Probability in the Coming Months?

Financial markets are watching for signals from the U.S. Federal Reserve. According to data captured by the CME FedWatch tool, the likelihood of interest rate cuts in the coming months indicates a cautious outlook, where the possibility of significant changes remains limited in the short term.

March: The lowest probability of immediate movement

For the upcoming March, the probability that the Federal Reserve will implement a 25 basis point cut is just 17.7%, while holding rates steady accounts for 82.3% of market expectations. This scenario suggests that investors do not expect decisive action at the next monetary policy meeting.

April: The probability begins to rise

As we move into April, the outlook changes noticeably. The cumulative probability of a 0.25% cut increases to 32.4%, while stagnation scenarios decrease to 63.5%. Additionally, there is a small but growing 4% chance that the Federal Reserve will implement a more aggressive 50 basis point cut.

June: Expectations of greater easing

Looking further ahead to June, the cumulative probability of a 25 basis point cut nearly doubles, reaching 50.4%. This significant increase reflects market expectations of a gradual easing of monetary policy as the year progresses.

What this means for investors

These probability figures are crucial for understanding market sentiment. The gradual increase in the likelihood of rate cuts toward mid-year suggests that market participants anticipate a cycle shift, though they recognize that any movement will be gradual and dependent on economic data released in the coming weeks.