CME FedWatch: 96.2% expect 25 bps rate cut, 0% expect no change

Markets are increasingly convinced the Fed is about to unleash a series of cuts, with futures showing multiple moves priced in through early 2026. Here’s what you need to know: 🔹 Sept. 17 meeting: 88% odds of a 25 bps cut, 12% odds of a 50 bps cut. 🔹 Additional 25 bps cuts in Oct. and Dec. both carry 70%+ odds. 🔹 Jan. 2026 cut odds stand at 43%, implying 100 bps (or more) of easing in 5 months. 🔗 Full breakdown in the comments below.

The Federal Reserve meets tomorrow, and the market is already watching closely. Right now, CME's FedWatch tool is showing over a 96% probability that the Fed will cut rates by 25 basis points (0.25%). In other words, the market is already pricing in a quarter-point cut. So here's what you should be watching for: - If the Fed delivers the expected cut, markets will likely continue responding positively - If the Fed holds rates steady, or cuts more than expected, markets could shift quickly either way With probabilities this high, the market is essentially betting on a rate cut. That means anything other than the 25 bps cut will drive a significant reaction. It'll be an interesting meeting to watch! Check out the CME FedWatch Tool yourself: http://spr.ly/6045ARD4b

Markets have fully discounted a 25 bps cut by the Fed today and one rate reduction either at the Oct 29 or the Dec 10 meetings. This would put the target range at 3.75%-4.00% at year end, exactly in line with the June projection of 3.9% for fed funds. While it is possible that the governors could cut by 50 bps today, it seems very unlikely given the Fed's historical reluctance to surprise markets and to reject political pressure for policy changes. CME futures at at 95.5% for a 0.24% decline. Such surprise as exists will come from the year's third set of economic and rate projections. If the governors signal that they expect a year end rate lower than 3.9% markets will quickly adjust in flurry of bond and equity buying and dollar selling.

A dovish shift from Fed Chair Powell at Jackson Hole lifted risk sentiment, sending US equities higher and the USD lower. Markets are now pricing in a 82% chance of a Fed rate cut in September, with more expected into 2026. The AUD rebounded but remains near its 1-year average. Locally, all eyes are on Wednesday’s July CPI print, which could influence the RBA’s cautious policy path.

The Fed just cut interest rates .25%. How will this effect equities? We don’t have a crystal ball for market performance, however, let's look at what people smarter than me are saying! “The average bull market lasts 70 months. We are about to complete month 35 of this one.” - Mike Zaccardi CFA, CMT “The stock market is incredibly hot. Since 1975, there have only been 6 times where the S&P 500 rose +30% or more in 5 months. 2025 is one of those times. in 100% of thse cases, the S&P500 has ended higher in the following 6 and 12 months, per Carson Research. In fact, during such occurrences, the S&P 500 has rallied by an average of +18.1% in the following 12 months” - Adam Kobeissi of the Kobeissi Letter wrote. On how the potential upcoming interest rate cut from the Fed will affect the market: “The central bank is now backed in a corner. They have to cut interest rates. Given asset prices are near all-time highs, we can only expect the newfound cheap capital coming into the market to push prices higher and higher in the coming weeks and months... Liquidity is coming. And investors will be very happy.” - Anthony Pompliano, Professional Capital Management. What do you think?

Fed cutting rates when markets are within 1% of ATH produces an average return of 15% over the next 12 months, with a100% hit rate: - JPMorgan

📊 #FOMC Rate Decision – What to Watch • Fed expected to announce a 25 bps cut at the September 17 meeting, bringing the funds rate down slightly from 4.25‑4.50%. • Key data inputs include recent weak labor market reports, moderating inflation, and soft consumer spending. • Watch for the updated dot plot – whether the FOMC projects additional cuts in 2025 and how far into 2026 they see rates. • Chair Powell’s tone in the statement and press conference is pivotal: will signal whether cuts are data‑driven or imminent vs. cautious. • Market impact: Cut likely to put downward pressure on USD and Treasury yields; equities may rally, especially growth and rate‑sensitive sectors; hawkish caveats could temper the move. #tradepedia

Fed thoughts for the week: As we embark upon a quarter-end Fed week complemented by an SEP/Dot-Plot, there is literally a 0% probability that the Fed will leave the Fed funds rate at 4 3/8%. The only question is whether the Fed will cut by 25 or 50 bps, and the consensus seems to be that a 50 bp cut could imply that the economy is weaker than we thought. So a 25 bp move seems all but certain. But what will draw more focus from Fed watchers than the widely telegraphed rate cut will be the Dot-Plot. The last Dot-Plot, released after the June FOMC meeting, projected a year-end 2025 Fed funds rate of 3 7/8% and a year-end 2026 rate of 3 5/8%. The market will be watching closely to see if those 2025 and 2026 year-end projections are lowered. If they are, expect a great week for equities! Have a good week 😉!

ON THE STREET MONTHLY - MARKET IMPLICATIONS IF THE FED CUTS The Federal Reserve meets next week, and the futures market is signaling a 91.8% chance of a rate cut. The remaining 8.2% even suggests the possibility of two cuts — meaning the market is fully expecting at least a quarter-point (25bps) reduction. Typically, rate cuts are associated with a struggling economy or falling markets. But this time is different: the Fed may cut while stocks are trading within 2% of all-time highs. That raised the interesting question — how has the market responded in the past when cuts happened at or near record levels? Please see our website for the full commentary: https://lnkd.in/gb2sFpT2 #LakeStreet #OntheStreet #Newsletter

This week all eyes are on Wednesday’s Fed decision. The Fed is expected to cut rates by 25 bps (or possibly even 50), but the real story isn’t the cut itself… it’s the Fed dots that show what could happen in the months ahead. If the dots confirm that this is the first of several cuts, markets will cheer. However, if the Fed signals a one-and-done, that’s a surprise negative and volatility could spike fast. Bottom line: It’s not just the cut that matters, but what it signifies about the next few months. #RateCut #Markets #InterestRates #Investing