The Federal Open Market Committee (FOMC) meeting on June 17–18, 2025, concluded with the federal funds rate unchanged at 4.25%–4.50%, as widely expected by economists and markets. The decision reflects the Fed’s cautious, data-dependent approach amid uncertainties from trade policies, including President Trump’s tariffs, which could fuel inflation, and a softening labor market. The FOMC’s Summary of Economic Projections (SEP) likely updated forecasts, with analysts anticipating a "dot plot" signaling one or two rate cuts for 2025, down from two previously, with September as the earliest likely cut (60% probability per bond futures). Inflation projections for Q4 2025 may have risen to 3.0% (from 2.8%), GDP growth lowered to 1.2% (from 1.7%), and unemployment ticked up to 4.5%.Fed Chair Jerome Powell’s press conference at 2:30 p.m. ET emphasized a "wait-and-see" stance, balancing inflation risks against economic slowdown concerns. No immediate rate changes were signaled, and Powell likely reiterated the Fed’s independence from political pressure, despite Trump’s calls for cuts. Markets showed muted reactions, with focus on Powell’s tone and future guidance. The next meetings are July 29–30 and September 16–17, with the latter including another SEP. Posts on X reflect mixed sentiment, with crypto traders eyeing Bitcoin’s response to Fed signals.
Explain rate cut probabilities
Rate cut probabilities refer to the market's expectations of the likelihood that the Federal Reserve (or another central bank) will lower its benchmark interest rate, like the federal funds rate in the U.S., at a future meeting. These probabilities are derived from financial instruments, primarily futures contracts and options, that reflect investor bets on monetary policy changes. Here's a concise explanation:
### How Rate Cut Probabilities Are Calculated
1. Fed Funds Futures: These contracts trade on the Chicago Mercantile Exchange (CME) and are priced based on the expected federal funds rate at a specific future date. The price of these contracts implies the market's anticipated rate.
- For example, if the current federal funds rate is 4.25%–4.50% and a futures contract suggests an effective rate of 4.0% for September 2025, it implies a 25 basis point (bp) cut (since 1% = 100 bp).
- The difference between the current rate and the implied rate is used to calculate the probability of a cut. If the contract price suggests a 4.125% rate, it might imply a 50% chance of a 25 bp cut (since 4.25% - 4.125% = 0.125%, halfway to a 25 bp cut).
2. CME FedWatch Tool: This widely used tool aggregates futures data to estimate probabilities of rate changes (cuts, hikes, or no change) at upcoming FOMC meetings. It assumes standard cut sizes (e.g., 25 bp or 50 bp) and calculates the likelihood based on contract prices.
- Example: If the market prices a 60% probability of a 25 bp cut for September 2025, it means traders see a 60% chance the Fed will lower the rate to 4.0%–4.25% and a 40% chance it stays at 4.25%–4.50%.
3. Options and Other Indicators: Options on fed funds futures or Treasury yields can also provide implied probabilities. Additionally, bond yields (e.g., 2-year Treasury notes) and market-based inflation expectations (like TIPS spreads) offer context for rate expectations.
### Factors Influencing Probabilities
- Economic Data: Inflation (e.g., CPI, PCE), unemployment, and GDP growth heavily influence expectations. Strong data may lower cut probabilities; weak data raises them.
- Fed Communications: FOMC statements, Powell’s speeches, and the "dot plot" (SEP projections) signal the Fed’s stance, impacting market bets.
- External Events: Geopolitical risks, trade policies (e.g., tariffs), or market volatility can shift expectations.
- Market Sentiment: Speculative trading, especially in volatile assets like crypto, can amplify or distort probabilities.
### Example from June 18, 2025, FOMC Meeting
For the September 2025 meeting, bond futures suggested a 60% probability of a 25 bp rate cut (to 4.0%–4.25%). This reflects:
- Concerns about slowing GDP growth (projected at 1.2%) and rising unemployment (4.5%).
- Uncertainty around tariff-driven inflation, which might delay cuts.
- The Fed’s cautious tone, with Powell emphasizing data dependence, reducing expectations for immediate cuts.
### Interpreting Probabilities
- High Probability (e.g., >70%): Markets are confident in a cut, often priced into asset values (stocks, bonds, crypto).
- Low Probability (e.g., <30%): A cut is unlikely unless new data shifts sentiment.
- 50/50 Odds: Uncertainty, often leading to market volatility as traders await clarity.
### Where to Check
- CME FedWatch Tool: Real-time probabilities based on futures.
- X Posts: Sentiment from traders, especially in crypto, can highlight market reactions but may be noisy.
- Financial News: Bloomberg, Reuters, or X threads often summarize shifts in probabilities post-FOMC.
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