Odds of Fed Funds Rate Cut Drop to 33% Ahead of December FOMC

Odds of a Fed Funds rate cut at the December FOMC meeting have fallen to 33% — what it means for borrowers, markets and the Fed's inflation outlook now.

The odds of a Fed Funds rate cut at the December FOMC meeting have dropped to 33%, signaling market skepticism about a near-term easing of monetary policy. Investors and borrowers are recalibrating expectations as the Federal Reserve continues to weigh inflation, labor market strength, and economic growth.

How are these odds measured? Market participants often look to Fed Funds futures, swap rates, and options to infer the probability of a rate change. A 33% probability means roughly one-in-three odds that the Fed will lower its policy rate at the December Federal Open Market Committee meeting. That pricing reflects a growing belief that the Fed may hold rates steady longer than previously anticipated.

Why have odds fallen? Several factors likely contributed. Recent inflation readings and core price measures have shown resilience, reducing confidence that price pressures are cooling sufficiently. The labor market remains tight, and several Fed officials have signaled a cautious approach to cutting rates until they are confident inflation is sustainably approaching target. Economic data, stronger-than-expected consumer spending, or hawkish Fed communication can all push market-implied odds lower.

What does this mean for markets and consumers? For markets, lower odds of a rate cut can support the dollar and pressure risk assets if investors adjust portfolios for a higher-for-longer rate environment. Fixed-income investors may see muted yields declines, and mortgage rates could remain elevated, affecting homebuyers and refinancers. For businesses and consumers, the prospect of delayed rate relief means borrowing costs may stay higher, impacting loans, credit cards, and corporate financing plans.

What to watch next: Traders and analysts will focus on upcoming inflation reports (CPI and PCE), employment data, and Fed speeches for clues about the timing of any future cuts. Any shift in price dynamics or clearer signs of cooling in labor markets could quickly change the probability calculus.

Bottom line: A 33% chance of a December Fed Funds rate cut reflects market caution and the Fed's data-dependent stance. Investors and borrowers should monitor key economic indicators closely, as small changes in inflation or employment data can meaningfully alter rate-cut odds in the weeks ahead.

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