Interest rate futures
What is the CME FedWatch Tool and how does it derive interest rate probabilities directly from 30-Day Federal Funds futures?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
The CME FedWatch Tool calculates probabilities of future Fed rate decisions by analyzing pricing in 30-Day Fed Funds futures, inferring market-implied expectations for rate hikes, cuts, or holds.
How it works
It uses the formula comparing current Fed Funds futures prices to the current effective rate to back out the probability-weighted expected rate at each upcoming FOMC meeting date.
An example
If Fed Funds futures imply an average rate slightly above the current target range, FedWatch shows a probability-weighted chance of a 25 basis point hike at the next meeting.
Risk & limitations
FedWatch probabilities are market-implied estimates that shift quickly with new data and shouldn't be treated as certain outcomes of Fed decisions.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.