Federal Reserve Interest Rate Cut Projections: Focus on March and the Second Quarter

Based on data from CME’s FedWatch tool released on January 30, the market reveals a range of expectations regarding the Federal Reserve’s potential actions from March to June. This data provides an overview of how likely the U.S. central bank is to adjust monetary policy in the first and second quarters of this year.

March: The Market Still Shows Doubt About Rate Cuts

In the March projection, the data indicates that the market has not fully believed in a rate cut. The probability of the Federal Reserve cutting rates by 25 basis points is only 15.3%, while the chance of keeping rates steady at the current level is much higher at 84.7%. This shows a very conservative market sentiment in the first month of the quarter.

April: Expectations for Cuts Start to Rise Significantly

Entering April, there is a notable shift in market expectations. The likelihood of a cumulative 25 basis point rate cut rises to 29.7%, indicating increased confidence in the possibility of a rate reduction. However, the option to maintain the status quo still dominates with a probability of 67.2%. Meanwhile, the scenario of a deeper 50 basis point cut has only a 3.2% chance this month.

June: Increasing Chances for More Aggressive Rate Cuts

As the second quarter approaches its end, projections change more dramatically. The probability of a 25 basis point rate cut jumps significantly to 48.3%, nearly reaching parity with the hold option at 33.7%. Even more interesting, the possibility of a deeper 50 basis point cut begins to attract market attention with a probability of 16.4%, indicating that more aggressive cut scenarios are starting to be considered.

Overall Trend: Escalating Expectations for Rate Reductions

A comprehensive analysis of FedWatch data shows a clear pattern that market expectations for Federal Reserve rate cuts are progressively increasing from March to June. Although March remains somewhat skeptical, momentum shifts sharply toward the end of the second quarter, with June showing significant opportunities for rate reduction actions. These projections reflect how markets dynamically adjust their anticipation of Federal Reserve decisions based on economic data developments and inflation indicators.