Fed funds traders grow more cautious about rate cuts

The Federal Open Market Committee's recently concluded meeting resulted in keeping the targeted federal funds rate at a 5.25% to 5.5% range. Federal Reserve Chairman Jerome Powell continued to dampen the market's hope for a near-term interest rate cut.

The CME Group's FedWatch Tool shows a 45.6% probability that the fed funds rate will fall to a 3.75% to 4% targeted range later this year. Traders currently place a 24.8% chance of a 3.5% to 3.75% fed funds rate and a 23.6% probability of 4% to 4.5%. At the end of December, there was a 38.6% probability of a targeted 3.5% to 3.75% fed funds rate and 35.7% at the 3.75% to 4% range.

The FOMC's projections, released following the central bank's December meeting, showed a median 4.6% fed funds rate at the end of this year. However, that's lower than the what the majority of traders expect, according to the FedWatch Tool.

FOMC forecasts range from 3.9% to 5.4%.

Economists predict the fed funds rate will drop to 4.25% to 4.5%, based on the median forecast. Fed funds projected targets range from 2.5% to 2.75% to 4.75% to 5%.