According to APP, the current target federal funds rate remains at 3.50%-3.75% . The CME FedWatch Tool, based on pricing in 30-day federal funds futures, indicates that the probability of the Fed shifting to an easing monetary policy in the short term is extremely low. This data reflects traders' overall assessment of the resilience of the US economy and inflationary pressures.

Specifically, after the March 18 meeting, the probability of a 25 basis point rate cut (target range reduced to 3.25%-3.50%) was only 1.7% , while the probability of maintaining the current level was as high as 98.3% . Looking at the cumulative perspective from the April 29 meeting, the probability of a 25 basis point rate cut rose to 5.9% , the probability of maintaining the current level was 94.1% , and the cumulative probability of a 50 basis point rate cut was only 0.1% . By the June 17 meeting, the cumulative probability of a 25 basis point rate cut further increased to 22.2% , while maintaining the current level still accounted for 76.7% , and the cumulative probability of a 50 basis point rate cut was 1.1% .

These probabilities are not static, but fluctuate in real time with employment, inflation, and economic growth data. The current low probability is mainly due to the strong momentum of the US economy, a stable job market, and core inflation, which, although declining, remains above the target range. Coupled with uncertainties brought about by geopolitical factors, the Federal Reserve is unwilling to ease monetary policy too early.

For a clear comparison, the following table presents the probability distribution after each key meeting:

A deeper analysis suggests that this cautious expectation will support a stronger dollar in the short term, potentially keeping US Treasury yields high and pushing up global borrowing costs. For major Asian countries, a strong dollar could exacerbate capital outflow pressures and impact risk asset valuations; however, if the easing path becomes clear after June, financing costs for export companies in these countries are expected to indirectly decrease, boosting confidence in cross-border investment. In the long term, the Fed's data-dependent strategy remains crucial, and any unexpected fluctuations in employment or CPI could quickly reshape the pricing curve.

Federal Reserve Chairman Jerome Powell stated clearly after the meeting at the end of January: "We will make decisions based on data on a meeting-by-meeting basis, without setting any pre-defined test criteria." This statement further reinforced the market consensus on holding rates steady in the short term, while also leaving room for flexible adjustments in the medium term.
Editor's Summary : Market pricing clearly outlines the Federal Reserve's transition from extreme caution to gradual easing. While high short-term interest rates help anchor inflation expectations, the opening of a window for cumulative rate cuts in the medium term will provide impetus for the repricing of global assets. Investors need to continuously monitor core economic indicators to dynamically adjust their portfolio allocation.
Frequently Asked Questions
Q1: What is the CME FedWatch tool, and how is the probability of an interest rate cut calculated?
This tool uses real-time pricing of 30-day federal funds futures contracts and mathematical models to derive the market's implied probability of the target interest rate range after each FOMC meeting. Simply put, higher futures prices mean traders expect interest rates to fall, and vice versa. It is not an official Fed forecast, but rather a real-time reflection of the collective wisdom of global investors, helping to identify policy turning points.

Q2: Why is the probability of an interest rate cut in March and April so low?
This is primarily due to the stronger-than-expected resilience of the US economy, robust employment data, and a slower-than-ideal decline in inflation. The Federal Reserve is concerned that premature rate cuts could reignite price pressures, while geopolitical and fiscal factors are increasing uncertainty. Current pricing indicates that the market believes at least more signs of cooling are needed before easing measures can begin; therefore, March is almost unchanged, and the cumulative change in April is minimal.

Q3: What recent statements has Jerome Powell made regarding the path of interest rate cuts?
Following the FOMC meeting at the end of January, he emphasized that "decisions are made on a case-by-case basis, based on data," refusing to presuppose any specific timetable or testing criteria. This cautious statement directly echoes the current low-probability pricing, indicating that the Federal Reserve will adhere to its dual mandate of employment and inflation, avoiding policy missteps.

Q4: How might the interest rate cut path evolve after June?
If inflation continues to fall back to near the target level and employment does not decline significantly, the probability of a cumulative easing of 50 basis points or more will increase rapidly; conversely, if the data is stronger than expected, the period of high levels may be prolonged. The market is currently pricing in 22.2% of the June 25 basis point target. Subsequent updates to the dot plot and economic reports will require close monitoring, as any unexpected data could trigger a sharp adjustment in probabilities. A comprehensive assessment combining macroeconomic indicators is necessary.