FedWatch shows 57% odds of September rate hike

CME Group’s FedWatch Tool shifted higher, assigning a 57% probability that the Federal Reserve will raise interest rates at its September policy meeting. The reading is derived from fed funds futures prices.

Traders reassessed odds after a series of economic reports showing persistent inflation pressures and continued strength in the labor market. Futures prices moved to reflect a higher chance of at least a 25 basis-point increase at the September meeting.

The FedWatch Tool converts fed funds futures into probabilities for outcomes at upcoming Federal Open Market Committee meetings. A 57% reading means more contracts are priced for a rate rise than for no change.

Market pricing adjusted quickly: short-term borrowing costs and money-market yields climbed modestly after the FedWatch reading moved. Market participants noted that futures-implied probabilities can shift rapidly as new data and comments from officials appear.

The Federal Reserve will review incoming reports on inflation, employment and overall economic activity before the September meeting. Weekly jobs figures, monthly inflation updates and remarks from Fed officials in the coming weeks could alter market odds.

Fed funds futures are contracts that reflect expectations about the federal funds rate; investors use the FedWatch output as a near real-time gauge of market expectations on policy.