Traders see good chance the Fed cuts again in December then skips in January

Expectations for a December interest rate cut remained strong after the Federal Reserve trimmed rates by a quarter percentage point in November, but market pricing is suggesting the likelihood of a “skip” in January.

On Thursday afternoon, the U.S. central bank lowered the federal funds rate, which determines what banks charge each other for overnight lending, to a target range of 4.5% to 4.75%.

Before the Fed released this decision at 2 p.m. ET, market pricing pointed toward a 67% chance of another quarter-point cut in December and a 33% chance of a pause that month, according to the CME FedWatch Tool.

The probability of a quarter-point December rate cut rose to more than 70% following the meeting, while the chances of a pause slipped to nearly 29%. Future rate probabilities found in the CME FedWatch Tool are derived from trading in 30-day fed funds futures contracts.