Traders are betting on a 87 basis point rate cut by the Federal Reserve by the end of 2025.

U.S. November CPI Data and Increased Rate Cut Bets
Data released by the U.S. Bureau of Labor Statistics on December 11 shows that the U.S. Consumer Price Index (CPI) rose by 2.7% year-over-year in November, aligning with market expectations. This figure is slightly above the Federal Reserve's target of 2%, showing a slight increase from the previous value of 2.6%. The CPI data indicates that inflation remains above the target level, despite a rebound from the previous month. Following the release, market expectations for future Federal Reserve rate cuts have intensified, with traders increasingly betting on the Fed cutting rates by 87 basis points by the end of 2025.

Intensified Expectations for Federal Reserve Rate Cuts
According to CME "Fed Watch," traders anticipate that the Federal Reserve will announce a 25 basis point cut to the benchmark interest rate during the meeting on December 17-18. Afterward, by the end of 2025, the Fed is expected to cut rates twice more, each by 25 basis points, totaling 87 basis points. This expectation is lower than the forecast in the latest September dot plot released by Fed officials, which suggested four potential rate cuts.

Specific Market Expectations for Rate Cuts
Before the December policy meeting, the market perceives only a 2.3% probability that the Federal Reserve will maintain current rates, while the probability of a 25 basis point cut is as high as 97.7%. Looking ahead to 2024, the market expects another 25 basis point cut in January, with a 1.7% probability of maintaining rates and a 27.1% probability of a cumulative 50 basis point cut.

Inflation Situation and Economist Opinions
Although the CPI data meets market expectations, it remains above the Federal Reserve's 2% target, indicating inflationary pressures have not fully subsided. Dan North, a senior economist at Allianz Trade of America, commented: "There is no sign from these data that the battle against inflation has been won." The U.S. Bureau of Labor Statistics will also release the Producer Price Index (PPI) this Thursday, an indicator of wholesale price changes, expected to rise 0.2% month-over-month.

Key Factors for Future Federal Reserve Decisions
In the upcoming policy meeting, the Federal Reserve will focus on inflation trends and their impact on the economy, as the inflation rate remains a critical factor in determining future monetary policies. Although the market broadly expects the Fed to maintain a loose policy in the short term, responding to ever-changing economic data remains challenging. Traders' expectations of future rate cuts will significantly influence market trends, particularly against the backdrop of increasing global economic uncertainty.

The release of U.S. CPI data has heightened market expectations of Federal Reserve rate cuts, with speculation that the Fed will make multiple cuts over the next two years, despite inflation levels still being above target and the economic outlook remaining uncertain.

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