As of Monday, Sept. 16, 2024, the odds of a significant rate cut are looking better than the chances of a smaller 25bps trim. Similar to how the money supply fluctuates, the federal funds rate serves as a key benchmark that affects many other interest rates across the U.S. economy. In simple terms, it’s the rate at which banks lend reserve balances to each other overnight.

Currently, the federal funds rate is set between 5.25% and 5.50%, a level established in July 2023. This is the highest it’s been since 2001, marking a 23-year peak. The last time the rate was lowered was back in March 2020, in response to the Covid-19 pandemic. Just one day ago, the CME’s Fedwatch tool showed the chances of both a 25bps and 50bps cut sitting evenly at 50%. Today, Sept. 16, the odds of a 50bps cut have jumped to 61%.

CME markets now show the chance of a smaller rate cut has dropped to 39%. On Sept. 15, Polymarket bettors gave the larger cut a 34% shot while the smaller cut held 65%. Fast forward 24 hours, and those odds have flipped. Now, Polymarket puts the chance of a 50bps cut at 52%, with the 25bps reduction slipping to 47%. These changing odds highlight the shifting expectations of market participants ahead of the Federal Reserve’s decision.

As traders and analysts adjust their outlooks on the economy, all eyes are on how the central bank’s move will impact the broader financial landscape. With the odds now favoring a bigger cut, anticipation is building for Wednesday’s pivotal meeting. The big question remains: how will the market react once the Fed makes its decision?

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