Market Pricing Indicates 66.3% Probability of Fed Keeping Rates Unchanged
Market pricing indicates a 66.3% probability that the Federal Reserve will keep interest rates unchanged tomorrow.
The probability of a rate hike is 33.7%, according to the CME FedWatch tool.
With expectations of steady capital flows, risk assets benefit relatively, and short-term rates face limited pressure, driven by a balance between inflation resilience and geopolitical risks.
Source: Public Information
ABAB AI Insight
The Federal Reserve has maintained its target range at 3.50%-3.75% multiple times during Kevin Warsh's tenure. Previously, market expectations for holding rates were nearly 90%, but have quickly shifted to about 30% for a rate hike, reflecting rising energy prices due to the Middle East situation and core PCE consistently above target.
The capital path involves repricing short-term interest rates through federal funds futures, with institutions simultaneously adjusting Treasury and dollar positions, motivated to avoid volatility from unexpected rate hikes at non-dot plot meetings while leaving room for potential actions in September.
This is analogous to the repeated repricing of rate hike rhythms during the inflation peak from 2022-2023, and the significant swings in rate cut expectations for 2024, currently transitioning from a "pause" narrative to a "possible resumption of tightening" phase.
Essentially, this represents a transfer of pricing power: the futures market directly constrains the policy communication space with real-time probabilities, forcing the central bank to recalibrate between data and expectations.
ABAB News · Law of Cognition
Probability is the market's vote
The longer the pause, the more expensive the rate hike
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