Over the past few days, market rates have indicated a 19.9% probability of a 25-basis-point rate cut at the Federal Open Market Committee meeting in March. This shift reflects a recalibration of expectations amid mixed economic signals and recent communication from the central bank.
The implied probabilities in the CME FedWatch tool show a clear adjustment in market expectations regarding monetary policy. Currently, about 19.9% of traders are pricing in a 25-basis-point rate cut at the March meeting, a decrease from the near 23% probability observed earlier this week. This shift reflects a more cautious tone among market participants.
This pullback comes after the Federal Reserve decided to leave rates unchanged at its January 2026 meeting. Since then, traders have begun to recalibrate their positions in anticipation of new macroeconomic signals, particularly the upcoming employment and inflation data, which are typically key to adjusting bets on the trajectory of interest rates.
The FedWatch reading is constructed from 30-day federal funds futures prices, allowing it to provide a dynamic signal of collective expectations. According to the tool’s own methodology, its short-term accuracy ranges from approximately 84% to 88%, which is why it is closely followed by trading desks and portfolio managers.
Short-term market rate outlook
With the decline in the probability of a rate cut, the “higher rates for longer” narrative is gaining traction. This narrows the margin for risk assets, as it reduces the likelihood of early monetary easing that many had begun anticipating for March. In this context, those who positioned themselves aggressively in anticipation of a rate cut may be forced to rebalance if upcoming indicators do not confirm a clear and sustained disinflation.
At the same time, the scenario remains highly dependent on data. A weaker jobs report or a downside surprise in inflation could quickly revive the probability of a rate cut, given that the expectations implied by futures contracts adjust almost in real time. This sensitivity explains why the market maintains some flexibility, despite the current more cautious bias.
In the crypto universe, where prices have shown a strong correlation with real interest rates and the dollar’s performance, the lower probability of short-term monetary easing implies more limited tailwinds from the liquidity side. For fixed income and currency markets, on the other hand, the adjustment in FedWatch compresses scenarios that anticipated a rapid drop in rates and favors a more defensive stance.
