CME FedWatch : the essential tool to consult before the Fed
The CME FedWatch Tool is a free and widely used resource offered by CME Group. It has become a key reference in the financial industry for tracking, in real time, market expectations about upcoming interest rate decisions by the U.S. Federal Reserve (Fed). Frequently cited in financial media, this tool allows traders and analysts to assess the likelihood of a rate hike, hold, or cut ahead of each scheduled FOMC meeting.
How does it work?
At the core of the FedWatch Tool lies data derived from 30-day Fed Funds Futures, which reflect the average federal funds rate expected for a given month. These contracts follow a simple rule:
Implied Rate = 100 – Futures Price
So if a futures contract trades at 95.67, the implied average rate is 4.33%. This is then compared not just to the Fed’s current target range (4.25% to 4.50%), but more specifically to the Effective Federal Funds Rate (currently around 4.33%) to estimate the market-implied probability of a rate hike, hold, or cut.
The FedWatch Tool then distributes these probabilities across expected scenarios for each upcoming meeting, allowing users to see, for instance, a 99.9% probability of a hold or a 0.1% chance of a cut. This makes it a real-time barometer of monetary policy expectations.
The Historical section: analyze and backtest
Beyond the live probabilities, the tool also features a Historical section. This shows how rate expectations evolved ahead of past FOMC meetings and what the Fed ultimately decided.
Users can download this data for further study, enabling a better understanding of how market sentiment shifted over time, particularly in reaction to speeches, inflation data, or jobs reports. This is especially valuable for those looking to backtest trading or hedging strategies tied to rate decisions.
The “Dot Plot”: insight into the Fed’s own outlook
Another key feature of the tool is the Dot Plot, which displays individual FOMC participants’ rate projections over time. Each dot represents a member’s view of where the fed funds rate should be by the end of a given year.
The Dot Plot is only updated four times per year, in March, June, September, and December, during the Fed’s so-called “summary of economic projections” meetings. These quarterly meetings are particularly market-sensitive because they are accompanied by updated economic forecasts and a press conference. While the dots do not reflect a formal voting commitment, they offer valuable insight into the Fed’s collective sentiment and long-term bias.
How to Interpret the Data?
A key takeaway for traders: don’t confuse the direction of interest rates with the overall message. A rate cut may not be “dovish” if paired with cautious language or projections. Conversely, holding rates steady may be interpreted as “hawkish” if the market was expecting a cut.
What really moves markets is the difference between expectations and what the Fed actually says or does. That includes the language of the statement, any changes in the dot plot, and Chair Powell’s comments in the post-decision press conference. These factors often matter more than the rate move itself.
The situation on Wednesday, June 18, 2025: what to expect?
The June 18 meeting is one of the quarterly meetings, meaning it will come with a press conference and a release of a new dot plot. As of now, the FedWatch Tool shows an extremely high probability (99.9%) of a rate hold within the current 4.25% to 4.50% range.
However, what matters most on this occasion is the guidance for the second half of the year. As of now:
This means the market still expects some policy easing later in the year, but not aggressively. If Powell opens the door more clearly to cuts, or if the new dot plot shows a downward shift in the median rate projection for 2025, the dollar could weaken and rate-sensitive assets might rally. On the other hand, if the Fed maintains a cautious stance and the dots remain unchanged, markets may interpret that as hawkish.
This is why knowing what the market has already priced in before the announcement is essential: the reaction depends not on the raw decision, but on how it compares to expectations.
In short…
For all these reasons, I believe the FedWatch Tool is a simple yet extremely powerful resource for anyone interested in U.S. monetary policy. It allows users to track market expectations and compare them with official Fed communications. It’s definitely a key part of my trading arsenal.
To go deeper, other tools can complement this analysis—especially implied volatility data from rate options markets. These don’t signal directional bias, but rather how large a move the market expects. That will be the focus of an upcoming article.
How does it work?
At the core of the FedWatch Tool lies data derived from 30-day Fed Funds Futures, which reflect the average federal funds rate expected for a given month. These contracts follow a simple rule:
Implied Rate = 100 – Futures Price
So if a futures contract trades at 95.67, the implied average rate is 4.33%. This is then compared not just to the Fed’s current target range (4.25% to 4.50%), but more specifically to the Effective Federal Funds Rate (currently around 4.33%) to estimate the market-implied probability of a rate hike, hold, or cut.
The FedWatch Tool then distributes these probabilities across expected scenarios for each upcoming meeting, allowing users to see, for instance, a 99.9% probability of a hold or a 0.1% chance of a cut. This makes it a real-time barometer of monetary policy expectations.
The Historical section: analyze and backtest
Beyond the live probabilities, the tool also features a Historical section. This shows how rate expectations evolved ahead of past FOMC meetings and what the Fed ultimately decided.
Users can download this data for further study, enabling a better understanding of how market sentiment shifted over time, particularly in reaction to speeches, inflation data, or jobs reports. This is especially valuable for those looking to backtest trading or hedging strategies tied to rate decisions.
The “Dot Plot”: insight into the Fed’s own outlook
Another key feature of the tool is the Dot Plot, which displays individual FOMC participants’ rate projections over time. Each dot represents a member’s view of where the fed funds rate should be by the end of a given year.
The Dot Plot is only updated four times per year, in March, June, September, and December, during the Fed’s so-called “summary of economic projections” meetings. These quarterly meetings are particularly market-sensitive because they are accompanied by updated economic forecasts and a press conference. While the dots do not reflect a formal voting commitment, they offer valuable insight into the Fed’s collective sentiment and long-term bias.
How to Interpret the Data?
A key takeaway for traders: don’t confuse the direction of interest rates with the overall message. A rate cut may not be “dovish” if paired with cautious language or projections. Conversely, holding rates steady may be interpreted as “hawkish” if the market was expecting a cut.
What really moves markets is the difference between expectations and what the Fed actually says or does. That includes the language of the statement, any changes in the dot plot, and Chair Powell’s comments in the post-decision press conference. These factors often matter more than the rate move itself.
The situation on Wednesday, June 18, 2025: what to expect?
The June 18 meeting is one of the quarterly meetings, meaning it will come with a press conference and a release of a new dot plot. As of now, the FedWatch Tool shows an extremely high probability (99.9%) of a rate hold within the current 4.25% to 4.50% range.
However, what matters most on this occasion is the guidance for the second half of the year. As of now:
- The market assigns a 56% probability to a first rate cut by September,
- A 41% chance to two cumulative 25 bp cuts (down to 3.75–4.00%) and a 21% chance of a more aggressive easing path (3.50–3.75%) by December.
This means the market still expects some policy easing later in the year, but not aggressively. If Powell opens the door more clearly to cuts, or if the new dot plot shows a downward shift in the median rate projection for 2025, the dollar could weaken and rate-sensitive assets might rally. On the other hand, if the Fed maintains a cautious stance and the dots remain unchanged, markets may interpret that as hawkish.
This is why knowing what the market has already priced in before the announcement is essential: the reaction depends not on the raw decision, but on how it compares to expectations.
In short…
For all these reasons, I believe the FedWatch Tool is a simple yet extremely powerful resource for anyone interested in U.S. monetary policy. It allows users to track market expectations and compare them with official Fed communications. It’s definitely a key part of my trading arsenal.
To go deeper, other tools can complement this analysis—especially implied volatility data from rate options markets. These don’t signal directional bias, but rather how large a move the market expects. That will be the focus of an upcoming article.
Founder of Satelys Ltd, which specializes in developing automated trading systems for the FX market, and a consultant for CME Group.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Founder of Satelys Ltd, which specializes in developing automated trading systems for the FX market, and a consultant for CME Group.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.