Guide · Markets

How Markets Put a Number on the Next Fed Decision

"Markets see a 50% chance of a hike" is a calculation, not an opinion poll. Here's where those probabilities come from, how to work one out yourself, and why the change in the odds matters more than the level.

Oct 15, 2026

When a news report says markets see a 50% chance of a Federal Reserve rate hike, nobody has surveyed traders. The figure is worked out from the prices of financial contracts whose value depends on where interest rates end up, mainly 30-day federal funds futures traded on the CME.

The arithmetic is simple. A fed funds futures contract is quoted as 100 minus the average interest rate traders expect for that month. A price of 96.00 implies an average rate of 4.00%. Suppose the Fed's target range is 3.75% to 4.00%, so the rate sits near 3.875%. If the futures for the month after a meeting imply 4.00%, traders are pricing an increase of 0.125 points. A hike is normally 0.25 points, so 0.125 divided by 0.25 gives a 50% probability.

There is one complication. Because each contract covers the average rate over a whole month, a meeting late in the month barely moves that month's average. For the Fed's October 27-28, 2026 meeting, analysts mostly look at November contracts, which would reflect a decision for the full month. The CME's FedWatch tool does these calculations automatically for every upcoming meeting.

The September 2026 CPI report is a good example of how fast the numbers can move. Before the release on October 14, markets put the chance of an October hike at about 20%, according to Capital Economics. After core inflation came in at 0.3% for the month against 0.2% expected, the estimate jumped to about 50%. The Fed had already raised rates in September, to 3.75%-4%, for the first time since 2023.

For traders, the key point is that markets react to changes in the odds, not to the decision itself. If a hike is fully priced in, the announcement often barely moves prices; a surprise in either direction does. On October 14 the 30-point jump in hike odds came with a 1.11% fall in the S&P 500 and a 6.1% drop in the silver ETF. Two-year Treasury yields, which track expected Fed policy closely, are a second useful gauge.

These probabilities have limits. They include a small premium for risk, they assume moves of exactly 0.25 points, and they can swing several times in a week as data and Fed speeches come in. Treat them as the market's current bet, which is often wrong a month out, rather than as a forecast.