Fed's Probability of Rate Cuts in January and March

Summary

According to CME FedWatch data, the probability of a 25 basis point rate cut by the Federal Reserve in January is 5%, with a 95% chance of rates remaining unchanged. For the March meeting, the probability of a 25 bps cut is 20.7%, while the likelihood of holding rates steady is 78.4%.Zhitong

Impact Analysis

So the market’s finally getting the message. The odds of a March cut have been slashed from over 40% just a week ago to around 21% nowZhitong. January is completely off the table. This isn’t just random volatility; it’s a clear repricing as consensus capitulates to the Fed’s patient, ‘higher for longer’ rhetoric.

What’s interesting is the external pressure. With Powell literally at the Supreme Court defending the Fed’s independenceAnueSec+ 2, they have every incentive to be rigidly data-dependent and ignore market noise. This makes a pre-emptive March cut even less probable.

Bottom line: I think that 21% probability for March is still too high. This repricing isn’t done. The trade is to stay positioned for a stronger dollar and be wary of rate-sensitive assets. The market is still pricing in a ‘hope’ premium for March that looks set to evaporate.