Markets Price In Huge Odds “98% Chance Fed Cuts Rates by 25 bps Today”

 

Traders are overwhelmingly confident that the Federal Reserve will trim the federal funds rate by 25 basis points (bps) at its upcoming policy meeting, with odds on the prediction exchange Kalshi hovering around 98%.  The move signals near-certainty among markets that the Fed is ready to shift gears from its previous tightening stance.

This pricing implies that the Fed’s target rate band  currently between 4.00%–4.25% is expected to be lowered to roughly 3.75%–4.00%.  Although the 25 bps figure is modest, the real story may lie in the accompanying forward guidance and any hint of an extended easing cycle.

Why Traders Are So Confident

Several key developments have helped tilt the odds sharply in favour of a cut:

• The prediction-market contract on Kalshi indicates a 98%+ probability of a 25 bps move, with only minimal chance of a larger 50 bps cut. 

• Softening economic signals  including slower job growth and easing inflation pressures  have bolstered expectations that the Fed will prioritise accommodation rather than further hikes.

• Markets have increasingly viewed the tightening cycle as nearing its end, positioning for transition into a period of easing liquidity and lower yields.

Because of this strong consensus, investors are focusing less on if a cut will happen, and more on what the Fed will say about its next steps. The so-called “dot plot” projections, balance sheet strategy, and how quickly additional cuts may follow are all now under scrutiny.

Market Impact: What Could Change

If the Fed follows through, here’s how different asset classes and sectors could respond:

• Equities: Lower interest rates generally boost equity valuations as the cost of capital falls. The pricing of a near-certain cut may already be reflected, but any dovish commentary could trigger a further rally.

• Fixed income: With yields likely to move lower, existing bonds may rise in price. The yield curve could steepen if investors expect more cuts ahead.

• Currencies & commodities: The U.S. dollar may weaken modestly on easing expectations, while gold and other inflation-hedge assets could benefit from the shift.

• Risk assets & crypto: Some analysts believe that a lower-rate environment could favour higher-beta assets such as altcoins, which often respond to improved liquidity conditions.

However, one major risk is a “sell-the-news” scenario: if the cut is already fully priced in (98% suggests it is), and the Fed’s message skews hawkish or cautious, markets could disappoint.

What to Watch

With the cut so strongly expected, attention turns to the following details:

• Will the Fed commit to additional cuts this year or keep an easing cycle open-ended?

• How will the Fed address quantitative tightening (QT) and balance-sheet runoff  will it slow or pause it?

• What is the tone regarding the labour market, inflation and risks  will it be data-driven, hawkish, or dovish?

• How will financial markets react to any subtle shift  given how strongly the outcome is priced in?

FAQs

Q1: Why are markets giving a 98% chance of a 25 bps cut?
A1: Because prediction-market data (via Kalshi) show nearly unanimous bets on a 25 basis-point reduction, reflecting traders’ consensus that the economy is cooling and the Fed is shifting to easing. 

Q2: Does a 25 bps cut guarantee lower interest rates long-term?
A2: Not necessarily. While it lowers the federal funds rate in the short term, long-term rates and yields depend on inflation expectations, growth outlook and Fed guidance.

Q3: Could the Fed cut by 50 bps instead?
A3: The odds of a 50-basis-point cut are very low about 2% according to the markets. Most participants expect a standard 25 bps move given current economic conditions.

Q4: What would happen if the Fed doesn’t cut?
A4: That would risk a major market shock: with a 98% cut probability priced in, a no-cut or less dovish than expected outcome could trigger a sharp sell-off in equities, rise in bond yields, and stronger dollar.

Q5: How might this cut affect borrowing costs for consumers?
A5: The federal funds rate influences short-term borrowing costs  such as credit cards, adjustable-rate loans and commercial paper  so a cut can provide relief. But the effect on mortgages and long-term loans may be more muted and gradual.

Q6: Why focus so heavily on the Fed’s tone rather than just the rate change?
A6: Because when policy is widely expected (as in this case), the language the Fed uses becomes the main driver of market reaction  especially regarding the path of rates, inflation, and its balance-sheet strategy.