Markets Reassess Fed Rate Cut Probability as Policy Meeting Looms

The financial markets are closely watching the Federal Reserve’s upcoming monetary policy meeting, with growing expectations for potential interest rate adjustments. The Fed will release the minutes from its latest policy meeting on Wednesday at 3 AM, a critical moment that could reshape market sentiment around near-term rate cuts.

CME Fed Watch Signals Rising Fed Rate Cut Probability

The CME “Fed Watch” tool, widely recognized as a barometer for market expectations, has shown a notable uptick in the projected probability of a 25 basis point rate cut in January. The gauge currently stands at 18.3%, climbing from 15.5% just one week prior. This uptick reflects shifting sentiment among traders and investors who are increasingly pricing in the possibility of the Federal Reserve easing its restrictive monetary stance in the coming months.

Prediction Markets Show Varied Fed Rate Cut Probability Expectations

Interestingly, alternative prediction platforms paint a slightly different picture. Polymarket, the decentralized forecasting platform, currently prices the fed rate cut probability for a 25 basis point reduction in January at 13%. The gap between the two markets—5.3 percentage points—highlights the divergence in how traditional financial institutions and retail prediction markets are assessing the likelihood of Federal Reserve policy shifts.

What Drives These Fed Rate Cut Probability Shifts

The rising expectations on CME’s platform suggest that institutional traders are becoming more confident in the probability of near-term monetary easing. This shift comes amid broader market discussions about inflation trends, employment data, and the economic trajectory heading into 2026. The minutes release this week could provide crucial clarity on the Federal Reserve’s thinking, potentially accelerating or moderating the recent upward momentum in rate cut probability.