Market Expectations Revealed: 25 Basis Points Rate Cut Odds Dominated December Federal Reserve Decision

According to CME FedWatch tool data, the financial markets were heavily pricing in a 25 basis points reduction in December, with that scenario commanding an 89.4% probability among traders and investors. The likelihood of the Federal Reserve maintaining its current stance stood at just 10.6%, indicating strong consensus around monetary easing.

December Rate Cut: Market’s Base Case Scenario

The overwhelming 89.4% odds on a 25 basis points cut reflected market participants’ conviction about the Fed’s December move. CME’s futures-derived probability measure suggested traders were highly confident in this outcome, relegating a hold decision to a mere 10.6% probability.

January 2025 Outlook: Diverging Policy Paths

Looking further ahead into the new year, the probabilities became more fragmented. Market participants assessed a 68.5% chance that the Federal Reserve would maintain rates through January, while a cumulative 25 basis points reduction by that point carried a 7.8% likelihood. More bullishly for rate cuts, the scenario involving a total 50 basis points in cumulative reduction—potentially combining the December 25 basis points with an additional January cut—commanded a notable 23.8% probability.

What FedWatch Tells Us

The CME FedWatch tool translates federal funds futures pricing into implied probabilities for different Fed policy outcomes. These numbers represented the market’s assessment of where rates would settle, balancing economic data, inflation trends, and Fed communications. The concentration of probability around the 25 basis points scenario underscored market clarity on the near-term direction, even as longer-term expectations remained more uncertain.