Is the Fed Still Going to Cut Rates?

Rate Cuts

The stock market started its torrid run through the end of 2023 on December 13, when Fed Chair Jerome Powell announced that he was eying multiple rate cuts in 2024.

To begin 2024, we’ve seen nothing but selling.

Does this mean that we are less likely to see rate cuts in the future?

Fed Watch Tool

The CME FedWatch tool is something I highly recommend - it predicts the likelihood of Fed decisions at each FOMC meeting.

What can we learn based on the probability changes for the January 31st meeting?

We can see that it is relatively unlikely that rate cuts are announced on January 31st. However, more notably, we can look at how the percentages have changed over time (see the probabilities at the very bottom of the chart).

On December 4th, the rate cut probability was 12.3%. On December 28th, it was 16.5% (after the Powell speech). On January 3rd, we were at 9.3%. Now just a day later we are at 4.7%.

So based on what has transpired over the past few weeks, we are anticipating that the probability of a rate cut in January has decreased by about 75%. To be clear though, that does not mean that rate cuts won’t happen - it is just unlikely to happen in January.

What About in the Future?

We can also use the FedWatch tool to see where we can expect to be with interest rates in the future.

Looking at the end of 2024, the most likely scenario is that we finish the year with interest rates somewhere between 3.75 and 4.25%. There is roughly a 60% chance of this happening.

Right now we are at 5.25-5.5% so this would mean roughly a 1-1.5% cut.

However, note that on December 28th, we had a 34% probability of rates been 3.5-3.75%, and now it is 17.8%.

So the current action of the market is absolutely impacting potential Fed decisioning in the future. This tool is powerful to understand how investors are looking at the market.

For more detailed analysis, watch the 3 minute clip below: