The probability of the Federal Reserve raising interest rate by 50BP in March is 28%

According to CME’s “Federal Reserve observation”, the probability of the Federal Reserve raising interest rates by 25 basis points to 4.75% – 5.00% in March is 71.6%, and the probability of raising interest rates by 50 points is 28.4%; By May, the probability of a cumulative interest rate increase of 50 basis points is 64.6%, the probability of a cumulative interest rate increase of 75 basis points is 32.6%, and the probability of a cumulative interest rate increase of 100 basis points is 2.8%.

Interpretation of this information:

The message from CME’s Federal Reserve observation indicates that there is a high likelihood that the Federal Reserve will increase interest rates in March. The probability of the increase being by 25 basis points to 4.75% – 5.00% is 71.6%, which is a significant possibility. However, the probability of the increase being by 50 basis points is lower, at 28.4%. This suggests that the Federal Reserve is more likely to opt for a smaller increase in interest rates, rather than a more significant one.

Looking ahead to May, the message notes that there is also a high probability of interest rates increasing further. The probability of a cumulative interest rate increase of 50 basis points is 64.6%, which suggests that there is a good chance that the Federal Reserve will continue with its policy of gradually increasing interest rates over the next few months. There is also a probability of a cumulative interest rate increase of 75 basis points, which stands at 32.6%. This implies that the possibility of the Federal Reserve opting for a more substantial interest rate rise over the next few months cannot be entirely ruled out.

However, the message from CME’s Federal Reserve observation also notes that the probability of a cumulative interest rate increase of 100 basis points is low, at 2.8%. This suggests that the Federal Reserve is unlikely to implement significantly steep interest rate rises over the next few months. Instead, the bank appears to be committed to slowly but surely increasing interest rates over time.

Overall, this message indicates that there is likely to be a gradual increase in interest rates over the coming months, as the Federal Reserve continues with its policy of measured rate increases. While there is a possibility of a more significant shift in interest rates, this is seen as being relatively unlikely. This message will be of interest to investors and businesses, who need to consider the potential impact of interest rate changes on their operations and finances. Understanding the likelihood of interest rate changes can help individuals and organisations to plan accordingly, and take steps to mitigate any negative effects.