Consensus nearly split on rate cuts

CME Group's Fedwatch tool estimated a 47.3% probability that the Federal Open Markets Committee will drop the federal funds target rate at its Wednesday meeting. Those expectations have come down significantly since late August when investors signaled about a 90% chance of a 25-basis-point rate cut at the mid-September meeting. With the current trade war between the U.S. and China, as well as potential U.S. involvement in a new conflict in the Middle East, events that could slow economic factors such as GDP growth, productivity and employment, make a good case for an easing of Fed policy. However, current signs show the U.S. economy slowing little. The yield on the 10-year Treasury has jumped more than 40 basis points in the past 10 days to around 1.8% on Tuesday afternoon.

CME Group calculates the probabilities based on price levels of 30-day futures contracts and assume rate change intervals of 0.25%. Probabilities shown represent what the fed funds rate will be at the conclusion of a given meeting.