Key Highlights
- Futures markets put the probability of a 25-basis-point Federal Reserve rate increase at 93.5%, up from 77.5% a week earlier.
- The probability of a 50-basis-point increase on December 9 is 6.5%.
- Market pricing assigns a 68.8% probability to a federal funds rate range of 4.25% to 4.50% after the January 27 meeting.
Markets Increase Bets on a December Fed Rate Increase
As the Federal Reserve’s December meeting approaches, financial markets are increasingly pricing in a quarter-point interest rate increase. Based on current CME futures calculations, the probability of a 25-basis-point hike has risen to 93.5%, compared with 77.5% one week ago. The probability has moved above 90% in the latest market pricing.
The Federal Reserve currently maintains its target interest rate range at 3.75% to 4.00%, following its October meeting. A 25-basis-point increase in December would lift the range to 4.00% to 4.25%. CME futures pricing gives a 6.5% probability to a larger 50-basis-point increase on December 9.
January Rate Outlook Points to Another Possible Hike
With the market focused on the likely December decision, the next major question is whether the Federal Reserve will raise interest rates again at its January 27 meeting. Current futures pricing assigns a 68.8% probability to an interest rate range of 4.25% to 4.50% after the January meeting.
The same pricing shows a 26.6% probability that the federal funds rate will remain in the 4.00% to 4.25% range after the January decision. The probability of a range between 4.50% and 4.75% stands at 4.6%.
What the Futures Pricing Signals
These probabilities represent market expectations for the federal funds rate range at the end of the January meeting. If the Federal Reserve raises rates by 25 basis points in December, the January range carrying the highest probability would require another quarter-point increase.
Why This Matters
The futures market is signaling strong expectations for a December rate hike and a meaningful possibility of another increase in January. The projected path would move the federal funds rate from its current 3.75% to 4.00% range to 4.25% to 4.50% by the end of the January meeting. Investors will continue assessing incoming economic information and Federal Reserve decisions as those meetings approach.
Frequently Asked Questions
What is the probability of a December Fed rate hike?
CME futures pricing puts the probability of a 25-basis-point increase at 93.5%. The probability of a 50-basis-point increase on December 9 is 6.5%.
What is the current Federal Reserve interest rate range?
The current federal funds rate range is 3.75% to 4.00%, following the Federal Reserve’s October meeting.
What rate range is most likely after the January meeting?
The 4.25% to 4.50% range has the highest market-implied probability at 68.8% after the January 27 meeting.
