Odds for US Rate Cut in December are Pricing Around 87% Probability at 25 Bps 0.25%

According to the latest data from the CME FedWatch Tool, markets are pricing in an 87% probability of a 25 basis point 0.25% cut to the US federal funds rate at the Federal Open Market Committee (FOMC) meeting scheduled for December 10-11.

This would lower the target range from the current 3.75%-4.00% to 3.50%-3.75%. Odds have fluctuated significantly in recent weeks due to mixed economic signals. For instance, they dipped to around 35% in mid-November amid stronger-than-expected jobs data and inflation concerns but have rebounded sharply on cooling labor market indicators and softer PCE inflation readings.

The tool, based on 30-day Fed funds futures prices, shows the following breakdown for the December meeting: 87% chance of a 25 bps cut to 3.50%-3.75%. 13% chance of no change holding at 3.75%-4.00%.

Negligible odds <1% for a larger cut or hike. Looking further ahead, markets now imply about 75-80 basis points of total cuts by the end of 2025, down from earlier expectations of 100+ bps, reflecting caution over persistent inflation risks.

With the CME FedWatch Tool showing an 87% probability of a 25 basis point (bps) cut at the December 10-11, 2025, FOMC meeting, U.S. stocks have rallied sharply in recent sessions.

This rebound follows a mid-November sell-off when odds dipped to around 30-50% amid hawkish Fed comments and mixed data, which dragged the S&P 500 down ~2-3% and pushed Treasury yields higher.

As probabilities climbed back above 80% on cooling jobs data, 4.1% unemployment and softer PCE inflation core at ~2.4%, equities recovered: the Nasdaq Composite gained ~1.5% on December 2, led by tech, while the S&P 500 and Dow Jones rose 0.5-1% in muted trading.

Crypto stocks like MicroStrategy +5.8% and Coinbase +1.3% also surged on the “risk-on” sentiment. However, volatility remains elevated—VIX up ~20% since October—due to data gaps from the recent government shutdown and tariff uncertainties.

If the cut materializes as expected, analysts see a potential 2-3% year-end S&P 500 grind higher, but a “hawkish cut” (e.g., signaling fewer 2026 easings) could trigger a 0.5-5% pullback via “sell-the-news.”

Lower rates reduce borrowing costs, boosting corporate profits, consumer spending, and investment—historically fueling ~7-10% S&P 500 gains in the six months post-cut non-recessionary periods.

Markets now imply ~75-80 bps of total 2025 cuts ending at ~3.0-3.25%, down from 100+ bps earlier, reflecting caution on persistent inflation risks from tariffs. This could broaden the rally beyond mega-cap tech, which has driven ~85% of 2025 S&P gains, toward small-caps and cyclicals if easing sustains growth.

Cheaper capital for capex; supports valuations like Nvidia, Alphabet up 5-10% on odds spike. Net interest margins compress but loan growth rises; historical +7.3% post-cut. Lower financing costs; data centers outperform (e.g., +6.8% in Oct).

Rate-sensitive; benefits from yield drop 10Y Treasury <4%. Boosted spending; holiday sales eyed at $1T+. Tariffs offset easing; Deere -5.7% on profit warning. Bitcoin has swung wildly +30% then -30% since Oct but could rebound 10-20% on confirmed easing, as seen in prior cycles.

Gold, up 60% YTD to $4,200/oz, acts as a hedge against volatility. The cut signals a “soft landing” but risks rekindling inflation if tariffs  on autos bite harder than expected—potentially forcing a 2026 pause.

A no-cut surprise 13% odds could spark a 1-2% dip, echoing November’s slump. Overall, easing supports a 2025 bull market extension, but fiscal deficits and geopolitics add headwinds—position for quality growth over speculation.

Watch Friday’s PCE data for final clues. These probabilities are derived from trader expectations in futures markets and can shift quickly with new data like upcoming nonfarm payrolls or CPI reports.

If you’re trading or investing based on this, consider consulting a financial advisor, as these are market-implied odds, not guarantees.