Just before the release of the highly anticipated U.S. nonfarm payrolls report, the CME FedWatch Tool indicates that markets are virtually certain the Federal Reserve will hold interest rates steady at its June policy meeting, with a 96.4% probability of no change versus a mere 3.6% chance of a 25-basis-point cut.
Looking ahead to the July meeting, the probability of rates remaining at the current level is 88.5%, while the likelihood of a 25-bp hike is 8.2%, and a 25-bp cut remains at a low 3.2%. These “cumulative” probabilities reflect expected net changes relative to the current target range for the federal funds rate.
The figures are derived from the CME FedWatch Tool, which calculates market-implied rate paths using prices of federal funds futures contracts. The methodology converts settlement prices into an implied rate for the contract month, then assumes the Fed adjusts policy only in 25-bp increments, and finally estimates a discrete probability distribution across possible target ranges, aggregating the results into cumulative hike or cut probabilities.
Nonfarm payrolls, a key gauge of labor market health, directly shapes market sentiment on the Fed’s policy trajectory. A significant deviation from consensus could trigger a rapid and pronounced repricing in the FedWatch probability readings.