#FedWatch
The CME FedWatch Tool is a widely used financial instrument, provided by the CME Group, that calculates the probability of Federal Open Market Committee (FOMC) interest rate changes. It is considered a key, real-time barometer of market sentiment regarding U.S. monetary policy.
What the FedWatch Tool Does:
Predicts Rate Moves: It uses 30-day Fed Funds futures data to determine the likelihood of rate hikes, cuts, or pauses for upcoming Fed meetings.
Calculates Probabilities: It translates market data into percentages, such as "a 90% chance of a 25bps cut".
Visualizes the "Dot Plot": It shows the Fed's own projections (dot plot) alongside market expectations, allowing users to compare what the Fed says versus what the market believes.
Provides Historical Data: It allows users to track how market expectations have changed over time in response to economic data or Fed speeches.
How it Works:
The tool is based on 30-day Fed Funds futures contracts, which represent the market's collective bet on future interest rates.
It assumes that rate changes occur in 25 basis point (0.25%) increments.
The data is updated daily, typically around 01:45 UTC, excluding holidays.
Why it Matters:
For Investors: It helps in planning investment strategies and managing risk before Fed announcements.
For Businesses: It offers insights into the direction of borrowing costs.
For Media: It is frequently cited as the preferred gauge for predicting U.S. monetary policy.
Reliability:
While highly regarded as a real-time indicator, the tool's projections can shift rapidly with new data and it is not always a perfect predictor of final Fed decisions, especially for meetings far in the future. $BTC $ETH $XRP
