The probability that the Federal Reserve will raise interest rates by 25BP will drop slightly to 79%

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 79% (81.9% yesterday), and the probability of raising interest rates by 50 basis points to 5.00% – 5.25% is 21.0%; The probability of a cumulative interest rate increase of 25 basis points by May is 8.3%, the probability of a cumulative interest rate increase of 50 basis points is 72.9%, and the probability of a cumulative interest rate increase of 75 basis points to 5.25% – 5.50% is 18.6%.

Interpretation of this information:

The CME’s “Federal Reserve observation” report shows that the likelihood of the Federal Reserve raising interest rates by 25 basis points to 4.75%-5.00% in March has decreased to 79%. This probability decrease is a decrease from 81.9% from the last observation recorded. However, this suggests that there is still a high chance of the rates increasing in March. Moreover, the probability of an interest rate hike of 50 basis points to 5.00%-5.25% has only increased slightly to 21%.

Looking further ahead, there is an 8.3% probability of a cumulative interest rate increase of 25 basis points by May. This probability has increased slightly from the last report. On the other hand, the probability of a cumulative interest rate increase of 50 basis points has increased significantly to 72.9%. This probability increase suggests that it’s very likely that the Federal Reserve will raise rates by 50 basis points before May. Lastly, there is a 18.6% probability of a cumulative interest rate increase of 75 basis points to 5.25%-5.50%.

The report mentions the likelihood of an interest rate hike in March, and further rate hikes in the near future. This indication suggests that the Federal Reserve is considering tightening its monetary policy. However, there is still a lot of uncertainty in the market, which is evident from decreasing probability values for March. Nevertheless, the likelihood of further rate increases indicates that the Federal Reserve is optimistic about the US economy.