Fed Rate Cut Expectations Weaken: January Rate Cut Odds Drop to 22.1% According to Latest CME Data

Market expectations for a Federal Reserve interest rate reduction in January have taken a notable shift, with the latest CME FedWatch indicator showing a significant cooling in rate-cut sentiment. As of December 21st, the probability of a 25 basis points rate cut next month has declined to just 22.1%.

Conversely, the likelihood of the Fed maintaining its current rate levels has strengthened considerably, now standing at 77.9%. This widening gap between the two scenarios reflects growing market confidence that policymakers will hold steady on their stance rather than pivot toward easing measures.

What This Means for the Market

The declining odds of a January rate reduction underscore the persistent inflation concerns and the Fed’s measured approach to monetary policy adjustments. When looking at such probabilities through a basis points calculator perspective, even marginal shifts in rate-cut expectations can trigger substantial moves across financial markets, particularly in risk assets like cryptocurrencies.

The data signals that traders are increasingly pricing in a pause-and-observe strategy from the Federal Reserve, suggesting that rate cuts—if they come—may be further out on the timeline than previously anticipated by some market participants.