By Gertrude Chavez-Dreyfuss
NEW YORK, Dec 10 (Reuters) – Futures on the federal funds rate, which measure the cost of unsecured overnight loans between banks, raised the odds on Wednesday that the Federal Reserve will pause its easing cycle at the next policy meeting in January.
Futures priced in a 78% chance the Fed will hold interest rates steady, compared with a 70% probability just before Wednesday’s rate cut announcement.
New projections issued after the U.S. central bank’s 25 basis-point rate reduction showed the median policymaker sees just one quarter-percentage-point cut in 2026, the same outlook as in September.
But even though the rate forecast from the Fed was for one rate decline next year, the rate futures market still priced in two cuts in 2026 or a fed funds rate of 3.0%. The Fed cut its key rate to a range of 3.50%-3.75% on Wednesday.
Only four policymakers, however, actually wrote down a single rate cut next year, with another four expecting two cuts and four others penciling in even more.
And in a move unprecedented in the history of the Fed’s so-called “dot plot,” six policymakers indicated they didn’t support even Wednesday’s quarter-point rate cut, penciling in 3.9% as the appropriate year-end rate for 2025.
“The dot plot, it’s such a poor forecasting tool and I’ve heard (Fed Chair) Powell say the same thing, but it does give you a lot of insight in how they’re thinking,” said JP Powers, chief investment officer at RWA Wealth Partners in Boston.
“So it looks like about seven of them are saying we should hold rates steady for all of 2026 and then eight of them are saying let’s cut at least twice next year, so there’s no consensus.”
(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Chuck Mikolajczak; Editing by Chris Reese)
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