Fed Funds Futures Explained: How to Read the Market's Bet on the December 2026 Rate Decision

 

Will the Federal Reserve raise rates at its December 8–9, 2026 meeting? As of October 31, 2026, the market’s answer is roughly a 70% chance of a quarter-point increase, which would move the federal funds target range to 4.00%–4.25%. That number does not come from economists. It comes from prices in the federal funds futures market, converted into probabilities by tools like CME’s FedWatch. This guide explains how those probabilities are built, how to read them correctly, and what to do with them — because the number moves every day, and most people read it wrong.

Where the odds come from: a one-minute explainer

Thirty-day federal funds futures contracts settle against the average effective federal funds rate (EFFR) for a contract month. The EFFR itself is a volume-weighted measure of overnight lending between banks, published each day by the Federal Reserve Bank of New York.

Fed funds futures are quoted with a simple convention: implied rate = 100 − futures price. If the December contract trades at 96.15, the market-implied average rate for December is about 3.85%. One complication: an FOMC meeting can fall in the middle of a month, so part of the contract month reflects the rate before the meeting and part reflects the expected rate after it. CME combines futures contracts for surrounding months to estimate the rate change markets are pricing around each meeting, assuming policy moves come in 25-basis-point increments. A simplified example: if futures imply an average move of 0.15 percentage points around a meeting, divide by 0.25 — that gives roughly a 60% probability of a 25-basis-point move in a two-outcome setup.

How to read the FedWatch tool, step by step

1. Select the meeting date from the tabs at the top — right now the live question is December 8–9, 2026.

2. Read the “Current” target-range table: each row is a possible post-meeting target range with its probability.

3. Compare with the “1 week ago” and “1 month ago” columns. The change in the odds usually matters more than the level.

4. Know the two views: the conditional view builds a meeting-by-meeting probability tree, while the aggregated view measures the expected change relative to the current range. They answer different questions, so check which one you are looking at.

What the market is pricing right now

All figures below are as of October 31, 2026. They move daily; treat any number without a date as stale.

For the December 8–9 meeting, fed funds futures imply about a 70% chance of a 25-basis-point hike to 4.00%–4.25% and about a 30% chance of a hold at 3.75%–4.00%. Prediction markets land in almost exactly the same place — Kalshi and Polymarket both put the December hike near 70–71% — which is a useful cross-check, since they use different pools of money. For the January 27, 2027 meeting, the base case flips: roughly a 72% chance of a hold.

The Fed’s own September projections tell a consistent story: the median participant put the federal funds rate at 4.1% at the end of 2026, which is roughly one more hike from here. And the bond market is arguably even more hawkish — the 2-year Treasury yield closed near 4.67% after the October decision, 67 basis points above the top of the Fed’s current range. For once, the market, the committee’s projections, and the bond market are broadly pointing the same direction.

Context helps: on October 28 the Fed held its target range at 3.75%–4.00% by a 10–2 vote, with Lisa Cook and Beth Hammack dissenting in favor of a quarter-point hike. The minutes of that meeting are due November 18, and December’s meeting includes a fresh Summary of Economic Projections.

Three ways people misread these odds

1. Treating them as the Fed’s forecast. They are prices where real money is risked, and they swing fast. In August, a single speech by Fed Chair Kevin Warsh moved the implied probability of a September hike from around 35% to about 60% within days. The December hike odds themselves sat below 20% in mid-October, spiked to roughly 85% right after the October statement, then settled near 70%. A single inflation report can move the number 20 points.

2. Hearing “70%” as “it will happen.” A 70% probability of a hike is also a 30% probability of a hold. The table shows a distribution, not a verdict.

3. Ignoring the fine print. CME’s calculation assumes policy moves come in 25-basis-point increments and that the effective rate responds proportionally. The probabilities are estimates under those assumptions, not literal odds.

What could move the odds before December 9

The next inflation and jobs reports land before the meeting, plus the October meeting minutes on November 18 and more speeches from Fed officials. Cooler data would push the December odds back toward a hold; hot data would push them toward a hike — or even toward pricing a second move. The practical habit: check the odds right after each data release and note which direction they moved. That repricing is the market digesting news in real time, and it often shows up in mortgage and savings rates long before the Fed does anything.

How to use this if you’re borrowing money

If you are shopping for a mortgage or deciding whether to refinance, the market’s message right now is that borrowing costs are likely to stay high and may edge higher. Run the numbers under both scenarios before you lock a rate. A quarter point sounds small until you multiply it by 30 years — try the EquiFi Mortgage Calculator Suite to see exactly what a 25-basis-point difference does to a monthly payment.

One caution: this post is an educational explainer, not financial advice. Rate probabilities are a useful input, but a borrowing decision that is large for your household may warrant a qualified professional’s input too.

Sources

• Board of Governors of the Federal Reserve System, FOMC statement, October 28, 2026 — federalreserve.gov

• CME Group, CME FedWatch Tool — cmegroup.com

• CME Group, CME FedWatch Tool User Guide — cmegroup.com

• Prediction Markets Picks, December 2026 FOMC odds tracker (includes futures-implied column), updated October 31, 2026 — predictionmarketspicks.com

• Charles Schwab, “How to Use the FedWatch Tool to Gauge Fed Policy” — educationcontent.schwab.com

• Coinpaper, “How Fed Rate Probabilities Work: Understanding CME FedWatch” — coinpaper.com