What markets are pricing
Every bond and futures price contains a bet on the future. Read the right ones and you can see what investors, as a group, expect central banks and inflation to do. This page reads them for you. These are the market's expectations, not ours, and markets are often wrong.
What markets expect at the next meetings
Futures and swaps let investors bet on the rate a central bank will set. Their prices can be turned into a probability for each decision.
| Central bank | Rate now | Next meeting | What markets price | As of · source |
|---|---|---|---|---|
| US Federal Reserve | 3.75–4.00% | 8–9 Dec | About 85–90% chance of a quarter-point rise, 10–15% of a half point; about 3% of no change | 10 Nov · CME FedWatch, compiled by Startup Fortune |
| European Central Bank | 2.50% | December | About 84% chance of a rise | 30 Oct · StoneX |
| Bank of England | 4.00% | December | About 50% chance of another rise, up from about 30% before 5 Nov | 5 Nov · Finimize |
Probabilities are implied by futures and swap prices, as reported by the source on the date shown. They change every day and are not forecasts by How the World Works.
The 2-year yield sits above the Fed's rate
A two-year Treasury yield is roughly the average Fed rate investors expect over the next two years, plus a small extra for tying money up. When it sits above the Fed's rate, markets expect rises; when it sits below, they expect cuts.
Markets expect inflation to come back down
The US government sells ordinary bonds and inflation-protected bonds (TIPS). The difference between their yields, the "breakeven", is the inflation rate at which both pay the same: a market estimate of average inflation over the period.
Inflation is well above what markets expect on average over the next five years: investors are betting that the oil shock passes and the Fed keeps inflation near its 2% target in the long run. The "5 years in 5 years" figure is the one central banks watch most closely, because it strips out today's shock.
- Inflation expectations
- How fast people, firms or investors think prices will rise in the future. Central banks watch them because wage demands and price setting follow them, so expectations that drift up can make high inflation last.
- Breakeven inflation
- The gap between the yield on an ordinary government bond and an inflation-protected one of the same maturity. It is the average inflation rate at which both would pay the same, so it is read as the market's inflation expectation.
- Policy rate
- The short-term interest rate a central bank sets. It anchors what banks pay to borrow from each other overnight, and from there flows into loan and savings rates. Its name differs by country.
- Bond yield
- The annual return a buyer earns by purchasing a bond at today’s price and holding it to maturity. When a bond’s price falls, its yield rises. The 10-year yield is the benchmark for mortgages and long-term business loans.
- Term premium
- The extra yield investors demand for locking their money up for many years, on top of what they expect short-term rates to average. It compensates for uncertainty about inflation and government finances.
How to read these numbers
- They move every day, sometimes sharply after a single data release: the Fed odds rose from 70% to 78% within hours of the October jobs report.
- A 77% chance of a rise is not a forecast that rates will rise; it means the market would be surprised by a hold about one time in four.
- The decision itself moves markets only if it differs from what was priced.
What they leave out
Market prices include a premium for risk, so they are not pure expectations: breakevens, for example, also reflect demand for inflation protection and how easily TIPS can be traded. Use them as a guide to what investors believe today, not to what will happen.
Sources and notes
- US 2-year and 10-year yields: US Treasury; breakevens and 5-year, 5-year forward expectation: Federal Reserve Bank of St. Louis; all via FRED, updated daily. Charts show month-end values.
- Central bank odds: as reported by the sources named in the table, from futures (CME FedWatch) and swap markets. Updated by hand when new figures are published.
- Nothing on this page is investment advice.
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