It’s Fed Day everyone! No, it’s not as much of a hit with the kids as birthdays and the Fourth of July. But for market participants, it IS a big event – especially this time around.
While Federal Reserve Chairman Jay Powell won’t cut interest rates today, he is likely to give guidance. Guidance on what the Fed is watching, what it’s thinking, and what it may do with rates down the road. That makes this a great time to play the “Probability Game.”
Here’s my first MoneyShow Chart of the Day – a probability distribution table produced by the CME FedWatch tool. It shows the percentage chances that rate futures traders are assigning to various short-term interest rate scenarios down the road. The blue-shaded boxes represent the likeliest level for interest rates at each of the next several Fed policy meetings.
Source: CME FedWatch
You can see traders are pricing in a 99% chance Powell leaves rates alone today…and a 79% chance he stands pat again at the meeting that ends May 7. But in June, the probability of a 25-basis point cut rises above the 50/50 threshold. And probability data suggests another cut is coming in September.
Some caveats to consider: These numbers change all the time depending on market action, economic data, Fed speeches, and more. Plus, the probabilities get squishier the farther out you go in time. The distant future is tougher to predict than the near future after all! But this exercise does help to show you what markets are looking for right now.
Meanwhile, my second MoneyShow Chart of the Day shows how expectations for the level of the Secured Overnight Financing Rate (SOFR) have changed over time. SOFR is a benchmark short-term rate that financial instruments like derivatives, loans, and other products are priced off of.
Source: Atlanta Fed
What should jump out at you right away? Expectations for the future level of interest rates have DROPPED notably in the last month. That’s shown by the lower level of the green line (expectations as of 3/14/25) relative to the blue line (expectations as of 2/14/25).
If you needed proof that economic concerns are on the rise, there it is! Or in other words, it’s not just plunging tech stocks, rising volatility, or surging gold prices signaling higher investor concern. Something to keep in mind on this Fed Day!
