Market expectations for U.S. monetary policy shifted modestly ahead of the Federal Reserve’s January meeting, according to CME FedWatch data. Futures pricing showed a 17.7% probability of a rate cut to the 325–350 basis point range, while traders still assigned an 82.3% probability that the Fed will keep rates unchanged at 350–375 basis points. No probability priced in a rate hike. Fed Rate Cut Probabilities. Source: CME FedWatch The change reflects repositioning in Fed funds futures rather than a policy signal from the central bank. FedWatch probabilities are derived directly from futures contracts, which react quickly to incoming macro data, market volatility, and shifts in risk appetite. As a result, small changes in pricing can produce visible swings in implied probabilities. Although the base case remains no change, the presence of a measurable cut probability highlights growing debate over the Fed’s next move. Traders continue to weigh cooling inflation trends against still-resilient labor market data, keeping expectations fluid into early 2026. Futures Pricing Shows Market Caution The January contract tied to the meeting, ZQF6, showed a mid-price of 96.3650, with notable trading activity and open interest remaining elevated. That positioning suggests markets remain sensitive to any data that could tilt expectations further toward easing or reinforce the hold narrative. Historically, the Fed has been cautious at turning points. In prior cycles, policymakers often waited for sustained confirmation from inflation and employment before initiating cuts. This pattern has kept traders reluctant to fully price aggressive easing, even as growth indicators soften. As a result, the January meeting appears framed as a checkpoint rather than a pivot. Futures markets currently signal limited conviction either way, with traders keeping optionality rather than betting heavily on a single outcome. Crypto Markets React to Policy Signals Digital asset markets showed a measured response as FedWatch probabilities updated. Bitcoin and Ether traded slightly higher during the session, reflecting sensitivity to rate expectations but without sharp follow-through. The muted move suggested traders treated the probability shift as incremental rather than decisive. Crypto assets have often responded to changes in rate expectations, as lower policy rates can ease financial conditions and support risk assets. However, with no clear policy change priced as the dominant outcome, reactions remained contained. Past cycles show that clearer momentum in crypto typically follows decisive moves in rate pricing rather than marginal probability changes. Until futures markets show stronger conviction, digital assets may continue to track broader macro signals without a sustained directional move.
