Will the Fed lower rates in December? The market gives 7 out of 10

Traders are betting heavily on a rate cut in December. The CME FedWatch shows a 69.8% probability that the Federal Reserve will lower rates by 25 basis points this month.

But here comes the interesting part:

December:

• 69.8% → cut of 25 bp
• 30.2% → unchanged

January (after December):

• 56.6% → accumulated decrease of 25 bp
• 23.2% → accumulated decrease of 50 bp
• 20.2% → no movement

The analysis: If the Fed lowers in December, the market expects it to stop there (56.6% only 25 bp in January ). But there is almost 1 in 4 chances that it will continue to drop sharply (50 bp accumulated ).

Translation? The inflation data for the coming weeks will be key. If the CPI surprises to the upside, it's possible that the Fed will be more cautious. If it decreases, more aggressive cuts may come.