CME Sees 91.9% Odds of a 0.25% Fed Rate Cut in October

Markets are now pricing in a 91.9% probability that the Federal Reserve will trim its policy rate by 25 basis points in October, according to CME-derived odds. The shift signals investor confidence that cooling inflation and softer growth data warrant additional easing after a long tightening cycle.

In rates, the most immediate impact is likely along the front end of the Treasury curve. Futures imply lower short-term yields as traders anticipate cheaper funding costs, while the longer end could remain more anchored by growth expectations and term premium dynamics. A modest bull-steepening is possible if investors pair rate-cut bets with concern about future expansion.

For equities, the setup typically favors rate-sensitive groups. Real estate and utilities often benefit from declining discount rates, while small caps—burdened by higher interest expenses—can see relief. Growth stocks may also catch a bid as lower yields support higher present values of future cash flows, though leadership will hinge on earnings momentum and guidance into year-end.

In credit, a 25 bps cut would ease refinancing headwinds and could tighten investment-grade spreads at the margin. High yield may participate, but dispersion will remain elevated as investors scrutinize leveraged balance sheets against late-cycle risks.

The U.S. dollar tends to soften when policy differentials compress, offering a tailwind to commodities priced in dollars. Gold’s appeal as a non-yielding asset can improve when real yields drift down. Meanwhile, housing activity could stabilize if mortgage rates follow front-end yields lower, though supply constraints and affordability remain structural hurdles.

What could move the probability from here? Incoming data—particularly core inflation gauges, payroll growth, and household spending—will be decisive. Any upside surprise in prices or reacceleration in labor markets could pare back cut expectations. Conversely, continued disinflation and cooler labor demand would likely cement the case for an October move.

Bottom line: With odds near 92%, markets are positioned for a quarter-point cut. Portfolio adjustments now revolve around duration risk, quality in credit, and selective exposure to rate-sensitive equity segments—while staying nimble for data-driven swings in policy expectations.