4 ms·

90% expected probability of a cut at the moment, down from 96% a week ago. A surprise no-cut would send a shock to the market IMO. https://www.cmegroup.com/mar

90% expected probability of a cut at the moment, down from 96% a week ago. A surprise no-cut would send a shock to the market IMO. https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html https://www.cmegroup.com/markets/interest-rates/cme-fedwatch...

bix6 1y ago
That’s 100% is it not? There’s 0% for current and then a split between the two potential cut amounts.
- baby-yoda 1y ago
  You're right - I'm so used to looking at the probabilities waterfall diagram where there's always some percent for status quo I glanced right over it not being there. In the time since I originally posted that the 400-425 basis point level has dipped another 2%, with that amount going towards a 50 basis point cut. Very muddy waters indeed. Powell has been adamant about fighting inflation so I struggle to understand how the market gives a zero percent chance of status quo.
  - bix6 1y ago
    It got me initially as well! I’m with you on Powell but I feel like he’s tired of fighting Trump so he’ll throw a cut just to get everyone off his back a bit.
m101 1y ago
How these things are calculated is dumb: The market implied rate (from swaps/forwards curves) for the following period is something like 27bps cut, so they say: - 27 Is bigger than 25, so 0 cuts is 0% - attribute 2/25bps likelihood to 50bps cut - the remainder is left to 25bps cut The reality is that there's a non-zero probability to unchanged, and a non-zero probability of 75bps+ cut etc etc. However this information would probably be in swaption prices and too complicated for anyone like the CME or media to make sense of. But at least with the way people talk about it they get to feel like they're making sense of the world.
- baby-yoda 1y ago
  Great point - I never looked into the specific calculation but this makes complete sense as you explain it. Thanks.

bix6 1y ago

That’s 100% is it not? There’s 0% for current and then a split between the two potential cut amounts.

baby-yoda 1y ago
You're right - I'm so used to looking at the probabilities waterfall diagram where there's always some percent for status quo I glanced right over it not being there. In the time since I originally posted that the 400-425 basis point level has dipped another 2%, with that amount going towards a 50 basis point cut. Very muddy waters indeed. Powell has been adamant about fighting inflation so I struggle to understand how the market gives a zero percent chance of status quo.
- bix6 1y ago
  It got me initially as well! I’m with you on Powell but I feel like he’s tired of fighting Trump so he’ll throw a cut just to get everyone off his back a bit.

m101 1y ago

How these things are calculated is dumb: The market implied rate (from swaps/forwards curves) for the following period is something like 27bps cut, so they say: - 27 Is bigger than 25, so 0 cuts is 0% - attribute 2/25bps likelihood to 50bps cut - the remainder is left to 25bps cut The reality is that there's a non-zero probability to unchanged, and a non-zero probability of 75bps+ cut etc etc. However this information would probably be in swaption prices and too complicated for anyone like the CME or media to make sense of. But at least with the way people talk about it they get to feel like they're making sense of the world.

baby-yoda 1y ago
Great point - I never looked into the specific calculation but this makes complete sense as you explain it. Thanks.