Traders Now Put the Odds of a December Rate Cut at Exactly Zero

Traders Now Put the Odds of a December Rate Cut at Exactly Zero

Fed funds futures price a 76.8% chance that the December 9 meeting lifts the target range to 4.00%-4.25%, up from 66.9% a day earlier. The odds of a cut are zero.

The argument has shifted from whether the Fed hikes to whether it hikes once or more than once.

Some background. The Fed raised rates in September to 3.75%-4.00%, its first increase since 2023, then held in October on a 10-2 vote, with two officials wanting another quarter point. October payrolls then came in at 165,000, close to three times what forecasters expected, and unemployment fell back to 4.1%. The one argument against hiking, that the labour market could not take it, went away with that report.

One row in the table matters more than the 76.8%. A month ago the market gave a half-point move a 16.1% chance; today that is zero, while the quarter-point move was already priced at 68.4% back then. What got priced out this month was speed, not direction.

A flatter path is friendlier to bonds than to equities. The risk sits past December, in an assumption that one more hike ends it.

Source: CME FedWatch Tool (Image: @LizAnnSonders)