Federal Reserve's Rate Cut Odds: What CME's Basis Point Predictions Reveal

GasGuru · 2026-02-13T21:18:10+00:00

Market expectations for Federal Reserve monetary policy are shifting, with low near-term rate cut probabilities. By April and June, however, chances of a 25 basis point cut are increasing, reflecting growing investor confidence in potential future rate relief and influencing investment strategies.

GasGuru

2026-02-13 21:18:10

Abstract generation in progress

The market’s expectations for Federal Reserve monetary policy are becoming clearer as new data emerges. According to the CME’s FedWatch Tool, one of the most widely tracked indicators for interest rate predictions, near-term rate cuts remain highly unlikely. For March specifically, the odds of a 25 basis point reduction stand at just 9.9%, while maintaining current rates carries a 90.1% probability.

April and June: Growing Probability of 25 Basis Point Adjustments

Looking ahead to April, the situation shifts noticeably. Jin10 data reveals that the cumulative odds of a 25 basis point rate cut climb to 23.2%, with a 75.1% chance of rates staying flat. A more aggressive 50 basis point cut scenario holds minimal probability at 1.6%. The outlook continues to shift further out: by June, the likelihood of a cumulative 25 basis point reduction reaches 46.0%, suggesting growing market confidence in eventual rate relief.

What Do These Basis Point Movements Mean?

Understanding basis point changes is crucial for investors. One basis point equals 0.01%, so when the Fed adjusts rates by 25 basis points, it represents a 0.25% shift in the overnight lending rate. These seemingly small increments can have significant ripple effects across financial markets, affecting everything from mortgage rates to bond yields.

Market Implications and Investor Expectations

The CME FedWatch Tool’s probability distribution paints a picture of cautious optimism. The data suggests that while immediate rate cuts are improbable, the second quarter shows rising expectations for monetary easing. The gradual increase in basis point cut probabilities from April through June indicates that market participants are increasingly pricing in policy adjustments as inflation concerns potentially moderate and economic conditions evolve.

This progression reveals how investor sentiment around Federal Reserve decisions is shifting, with basis point expectations becoming increasingly important to portfolio managers weighing their hedging and positioning strategies.

This page may contain third-party content, which is provided for information purposes only (not representations/warranties) and should not be considered as an endorsement of its views by Gate, nor as financial or professional advice. See Disclaimer for details.