#Fed 23% “See” a Cut at Next FOMC: Why the Market is Starting to Bet on a Rate Cut in March

A shift that is not going unnoticed has been recorded in the interest rate markets in the last few hours. Traders are now pricing in a probability of about 23% for a rate cut at the next Federal Reserve meeting, on March 18, according to data from the Fed Funds market. Until recently, this scenario was moving lower, near 18%, which indicates that something is changing behind the scenes.

The picture remains clear regarding the base case: the majority of the market, about 77%, still “sees” interest rates remaining in the current range of 3.50%–3.75%. However, the reemergence of a substantial percentage in favor of a 25 basis point cut is news in itself. This is not a massive bet, but a shift that reveals growing uncertainty.

What exactly is the market pricing in?

The crucial point is that the market is not pricing in deep easing. The only alternative scenario that is being captured is a mild 25 bps cut, which would bring the target range to 3.25%–3.50%. There is no substantial expectation of a larger move, which shows that traders are not discounting an economic shock, but a precautionary or symbolic step by the Fed.

Simply put, the market’s message is twofold: on the one hand, “we are in no hurry to talk about a cycle of cuts”, on the other, “we do not want to ignore the possibility that the Fed’s stance changes sooner than we expect”.