Traders in the federal-funds-futures market were pricing in a higher chance that the Federal Reserve will skip cutting interest rates next month, as investors weighed the Fed’s latest economic projections.
Shortly after the Fed announced Wednesday it decided to cut its benchmark rate to a target range of 4.25% to 4.5%, fed-funds futures indicated an 88.5% chance that the central bank would maintain its policy rate at that level at its next meeting in late January, according to the CME FedWatch Tool, at last check. That’s up from a probability of around 80% priced in earlier on Wednesday.
“While the Fed opted to round out the year with a third consecutive cut, its New Year’s resolution appears to be for a more gradual pace of easing,” said Whitney Watson, global co-head and co-chief investment officer of fixed Income and liquidity solutions at Goldman Sachs Asset Management, in emailed comments after the Fed’s rate decision Wednesday.
“Reflecting recent stronger data, changes to the FOMC’s inflation and unemployment forecasts were hawkish and the dot-plot now sees just two cuts in 2025,” she said. “We expect the Fed to opt to skip a January rate cut, before resuming its easing cycle in March.”