Markets are pricing in an 87% chance that the Federal Reserve will lower interest rates by 25 basis points at its December 10, 2025 meeting — a signal that the era of aggressive tightening may finally be winding down. The data, drawn from both the CME Group’s FedWatch tool and Polymarket’s prediction dashboard, reflects a decisive pivot in investor sentiment after three years of rate hikes designed to crush inflation. It’s not just a number — it’s a story about households breathing easier, mortgage applications creeping back up, and businesses finally getting some breathing room.
What the Numbers Really Mean
As of 6:00:05 PM CT on November 28, 2025, the CME Group’s FedWatch tool — which tracks 30-Day Fed Funds futures contracts under ticker ZQ — showed an 87% probability of a 25 basis point cut. A 13% chance remains for no change. A 50+ basis point cut? Just 1%. And a rate hike? Less than 1%. The Polymarket dashboard, a prediction market platform based in New York, echoed nearly identical odds. Both tools rely on real-time trading activity, not forecasts or polls. This isn’t speculation — it’s money talking.
The Federal Reserve hasn’t officially signaled a cut yet. But markets don’t wait for press releases. They react to what they see: cooling inflation, slowing job growth, and signs the economy is losing momentum. The federal funds rate, currently stuck at 5.25%-5.50% since July 2023, has been the anchor of U.S. monetary policy since the Fed began hiking in March 2022. Now, traders believe the central bank will start trimming — not because inflation is gone, but because it’s no longer the biggest threat.
Why This Matters to Everyday Americans
When the Fed cuts rates, the ripple effects hit wallets directly. Mortgage rates — which soared past 8% in 2023 — could drop back toward 6.5% or lower. Auto loans, credit card APRs, and business lines of credit all follow suit. Homebuyers who sat out the last two years because of affordability may return. Small businesses that delayed expansion plans could finally pull the trigger. Even student loan payments, though federally managed, often trend with broader market rates.
Here’s the thing: this isn’t a panic move. The Fed didn’t get here by accident. Inflation, which peaked at 9.1% in June 2022, has steadily declined to 2.8% as of October 2025. Core inflation — excluding food and energy — is now at 3.1%, the lowest since early 2021. The labor market, once red-hot, has softened just enough to give the Fed cover to ease. Unemployment ticked up to 4.2% in November, from a 50-year low of 3.4% in 2023. That’s not a crisis. It’s a correction.
Who’s Behind the Tools?
The CME Group, headquartered at 20 S Wacker Dr in Chicago, operates the FedWatch tool using derivatives pricing. Its methodology is transparent: it calculates probabilities based on how traders are betting on the future federal funds rate. Meanwhile, Polymarket — a decentralized prediction market platform — lets users buy and sell shares tied to outcomes. Think of it like a stock market for events. If you believe the Fed will cut, you buy shares in the “25 bps cut” outcome. The price of those shares becomes the probability.
Both tools have their critics. Some economists argue prediction markets are noisy. Others say they’re more accurate than surveys. The truth? They’re both mirrors. They reflect what traders believe — not what the Fed will do, but what the market thinks the Fed will do. And since the Fed pays attention to markets, this isn’t just noise. It’s feedback.
The Bigger Picture: From Hikes to Cuts
The Fed’s last hike came in July 2023. Since then, it’s held steady — a rare pause in a decade of volatility. But the market’s shift to expecting a December cut is the clearest sign yet that the central bank’s priorities are changing. In 2022, the goal was to kill inflation at any cost. In 2025, the goal is to avoid a hard landing. The Fed’s own projections, released in September, hinted at one cut by year-end. Markets are now betting on more than one.
Historically, the Fed doesn’t cut rates until it’s sure inflation is truly under control. The fact that traders are so confident suggests they’ve seen enough data — from wage growth to consumer spending to manufacturing output — to believe the worst is over. And if the Fed delivers on December 10? It won’t just be a technical adjustment. It’ll be a psychological turning point.
What’s Next?
The next FOMC meeting is December 10, 2025. Markets will be watching Jerome H. Powell’s press conference like hawks. If he says the door is open to further cuts in 2026, expect bond yields to drop further and stocks to rally. If he dials back expectations, the market could reverse course — fast.
Don’t expect a series of cuts right away. The Fed is still cautious. But this December could be the first step in a new cycle — one where the central bank tries to gently nudge the economy back toward growth without reigniting inflation. That’s the tightrope walk ahead.
Frequently Asked Questions
Why are markets so confident about a rate cut in December 2025?
Markets are reacting to consistent signs of cooling inflation — core CPI fell to 3.1% in October 2025, down from 9.1% in mid-2022 — and a softening labor market with unemployment at 4.2%. Traders believe the Federal Reserve has done enough to tame inflation and now needs to prevent economic stagnation. The 87% probability reflects collective betting by institutional investors and hedge funds using Fed Funds futures and prediction markets.
How do CME Group and Polymarket differ in how they calculate rate probabilities?
CME Group uses derivatives pricing from 30-Day Fed Funds futures contracts (ticker: ZQ), calculating probabilities based on the implied future rate. Polymarket uses prediction market trading — users buy shares in outcomes like ‘25 bps cut,’ and the market price of those shares becomes the probability. CME’s data is institutional; Polymarket’s is crowd-sourced. Both are highly correlated, which boosts their credibility.
Could the Fed surprise markets and hold rates steady in December?
Yes — but it would be a shock. A hold would mean the Fed is still worried about inflation rebounding, perhaps due to unexpected wage growth or geopolitical supply shocks. That could trigger a sharp selloff in bonds and equities, as investors who bet on cuts would be wrong. The 13% chance of no change reflects that tail risk, but the overwhelming market positioning makes a hold unlikely without new inflation data.
What impact would a 25 bps cut have on mortgages and consumer loans?
A 25 basis point cut would likely push the average 30-year fixed mortgage rate from 7.1% down to around 6.7% within weeks, making monthly payments roughly $100 cheaper on a $300,000 loan. Auto loan rates and credit card APRs, which track the prime rate (tied to the federal funds rate), would follow suit. This could revive housing demand and boost consumer spending — key drivers of economic growth.
Is this the start of a longer easing cycle, or just a one-time adjustment?
Most economists think this is the first of several cuts. The Fed’s own dot plot from September 2025 showed three cuts projected for 2026. Markets are pricing in one in December and another in March 2026. If inflation stays near 2.5% and job growth remains moderate, the Fed could cut again in Q1 2026 — possibly bringing rates to 4.75%-5.00% by mid-year.
Why is the Fed waiting until December instead of cutting earlier?
The Fed prefers to wait for the full set of data — including November’s jobs report and December’s CPI — before acting. Cutting too early risks reigniting inflation. December’s meeting is the last one before the new year, giving policymakers time to assess year-end trends. Plus, markets expect it. Waiting avoids the perception of panic. It’s a deliberate, calculated move — not a reaction.