The Tool Desk
Outbyte PC Repair FREERepair Windows errors before they cause bigger problemsFix Now →Outbyte Driver Updater FREEFix the driver behind crashes, sound loss and screen glitchesFind Drivers →A rate-hike probability is a market-implied estimate of the chance that the Federal Reserve will raise its target rate at a future Federal Open Market Committee (FOMC) meeting. A widely used public reference, CME FedWatch, derives its estimates from prices of 30-Day Fed Funds futures. The result reflects market pricing and a set of modeling assumptions—it is not a Federal Reserve forecast or a guarantee of what the Fed will do. CME FedWatch describes the tool, and CME’s methodology explains its calculation.
What does a rate-hike probability mean?
In plain language, it answers: how likely do interest-rate traders think a Fed rate increase is at a particular upcoming meeting? The estimate is inferred from futures prices. It is not a count of how often hikes have occurred, a vote by policymakers, or an official prediction issued by the Federal Reserve.
Fed funds futures reflect expectations for the average daily Effective Federal Funds Rate (EFFR) during a contract month. The New York Fed publishes the EFFR daily, according to CME’s methodology explanation. Since a contract month may include days both before and after an FOMC decision, its monthly average can incorporate more than one expected policy-rate level.
How is the probability calculated?
The simple one-meeting calculation
Suppose the only two possible outcomes are no change or a 25-basis-point hike. Compare the futures-implied rate after the meeting with the rate implied before it, then divide the difference by 0.25 percentage points (25 basis points):
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Implied hike probability = (implied rate after meeting − implied rate before meeting) ÷ 0.25 percentage points
CME’s hypothetical example uses an implied rate of 5.125% before a meeting and 5.250% after it. The difference is 0.125 percentage points; divided by 0.25 percentage points, that produces a 50% implied probability of a 25-basis-point hike. This is an illustrative calculation published by CME in 2024, not a current market reading. CME’s example and guide provide the figures.
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Why the full calculation is more complex
A monthly futures contract averages the EFFR over its calendar days. When a meeting falls partway through the month, days before and after the decision contribute to the same contract’s implied average. CME’s methodology therefore uses meeting and non-meeting months, neighboring contracts, and assumptions about how rates change to build a probability tree across meetings.
The model assumes policy-rate changes occur in multiples of 25 basis points and that the EFFR responds proportionally to a policy move. It uses relationships between a non-meeting month’s average implied rate and rates at adjacent month boundaries to propagate implied rates through the sequence of meetings. Possible outcomes can then be combined to estimate cumulative paths through later meetings. These assumptions help make the calculation possible, but they also mean the displayed result is model-dependent; it may differ if actual rate changes or the EFFR response do not fit those assumptions. See CME’s methodology for the full approach.
Why can two rate-hike probabilities differ?
A figure is meaningful only when you know what it describes. CME’s traditional conditional view frames a meeting relative to rates implied by adjacent months or the prior meeting path. Its aggregated view presents possible outcomes relative to the current target range and traces paths to later meetings. A percentage from one view is not necessarily comparable with a percentage from the other. CME’s guide explains the views.
When comparing a figure with another display or an earlier reading, check these details:
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- Meeting: Which FOMC meeting date does it refer to?
- Outcome: Does the percentage refer specifically to a hike, or to a different rate outcome?
- View: Is it conditional on the path into that meeting, or aggregated relative to the current target range?
- Timestamp: When were the underlying market prices recorded?
- Implied rates: Which futures-implied rates were used?
Futures prices change, so probabilities can move as market expectations shift. CME’s tool offers current and comparative views and historical probability data going back a full year, according to its user guide. Any quoted live probability should be checked against a fresh display and accompanied by its timestamp.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How should you use the figure?
Treat it as a snapshot of what futures prices imply under the tool’s calculation framework—not as certainty about the Fed’s next decision. It can help describe market expectations, but it cannot tell you what policymakers will decide or whether a particular financial choice is right for you. CME says its tool’s data and output do not constitute investment advice or a personal recommendation. CME FedWatch
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