#FOMCWatch Let's talk about the CME Fed Watch Tool, also known as FOMC Watch.
🧐 What is it?
It is a tool from CME Group that calculates market probabilities regarding interest rate movements of the Federal Open Market Committee (FOMC) based on the prices of federal funds futures.
👉🏻 How does it work?
🔸 It analyzes futures contracts that reflect what the market expects the interest rate to be 30 days after an FOMC meeting.
🔸 Based on those prices, it calculates the probability of different scenarios (for example: that the FOMC will raise, lower, or maintain rates).
🔸 It also allows for comparing how that probability has changed over time (by day, week, month).
✍🏻 Why is it important?
🔸 It provides a view of the market on where it believes U.S. monetary policy is headed, which can influence investments, bonds, currencies, etc.
🔸 It helps anticipate risks or key movements before the FOMC meeting, which is useful for analysts, traders, and investors.
🔸 It improves the interpretation of the signals sent by the central bank when markets have already formed expectations.
🚫 Limitations
🔸 It is not a guaranteed prediction: it only reflects what the market expects, not what the FOMC will decide.
🔸 It can change rapidly if new economic information arrives (inflation, employment, etc.).
🔸 It depends on the liquidity of the futures market and how well those futures reflect the true market expectation.
