Fed hike odds of 56% — the number comes from a futures price, not a poll
A headline number such as a 56 percent chance of a September hike is not a survey result. It is derived backwards from the price of 30-day federal funds futures, which trade at 100 minus the expected average effective fed funds rate for that month. Read the price and you get the average rate the market expects; work out where that sits between a no-change scenario and a hike scenario, and the ratio is the probability. After Kevin Warsh's Jackson Hole speech on August 28, 2026 that value jumped from the 30s to about 56 percent, with some outlets citing 59 percent from futures pricing
The three lines
- Source — not a poll: it is reverse-engineered from 30-day fed funds futures prices
- Formula — where the implied average rate sits between the no-change and hike scenarios
- Caution — 56 and 59 percent coexist because the timestamp and rate assumptions differ
Key questions
- Where does the 56 percent Fed hike probability come from?
- **From CME's FedWatch tool, which works backwards from federal funds futures prices.** It is not a survey of economists and not a tally of Fed officials' remarks. It translates one traded price into a probability. The input is a single instrument: **30-day Federal Funds Futures**, which settle at **100 minus the average effective fed funds rate for that month**. A price of 96.30 means the market expects a **3.70 percent** average for the month (illustrative figure). After Warsh spoke at Jackson Hole on **August 28, 2026**, that calculation moved from the **30s to about 56 percent**; some outlets published **59 percent** from futures pricing the same day.
- How is the probability actually calculated?
- **Three lines.** ① Extract the **expected average rate** from the price (100 minus price). ② Compute two scenario values — the average if the Fed **holds**, and the average if it **hikes 25 basis points**. ③ See where the expected average falls between them: **(expected − hold) ÷ (hike − hold)**. A result of 0.56 is published as 56 percent. The wrinkle is that the meeting falls **mid-month**. The September FOMC is on **September 15-16**, so September's average blends roughly 15 days at the old rate with 15 days at the new one. Without that adjustment the same price yields a very different probability.
- Which is right, 56 percent or 59 percent?
- **Both use the same raw material with different assumptions.** Three things diverge. ① **Timestamp** — futures move all session; which intraday price you use shifts the answer by points. ② **Effective-rate assumption** — the target is a **range, 3.50 to 3.75 percent**, and the effective rate sits somewhere inside it; taking the top versus the midpoint changes the result. ③ **Instrument** — CME FedWatch uses fed funds futures, while some coverage quotes a separate **prediction market**, with different participants and liquidity. In practice the useful reading is not the level but **the size of the move in a day**: going from the 30s to 56 percent is what tells you what the speech did.
Kevin Warsh spoke at Jackson Hole on August 28.
The sentence that ran everywhere: odds of a September hike jumped from the 30s to 56 percent.
Nobody was asked. That 56 percent is one futures price, translated.
1. One instrument
| Item | Detail |
|---|---|
| Product | 30-Day Federal Funds Futures |
| Exchange | CME |
| Pricing rule | price = 100 − average effective fed funds rate for the month |
The pricing rule is the whole tool. A price of 96.30 says the market expects a 3.70 percent average that month (illustrative).
The futures price is the market's answer to one question: what will the average rate be that month? FedWatch turns that answer into a probability.
2. Three lines to a probability
| Step | What it does |
|---|---|
| ① | Extract the expected average rate (100 − price) |
| ② | Compute the hold average and the hike average |
| ③ | Express the expected average as a ratio between them |
Probability = (expected − hold) ÷ (hike − hold)
Equal to the hold value: 0 percent. Equal to the hike value: 100 percent. Exactly between: 50 percent.
3. The mid-month meeting problem
| Item | Value |
|---|---|
| September FOMC | September 15-16 |
| Days in September | 30 |
| Before the decision | ~15 |
| After the decision | ~15 |
The contract prices a monthly average. A hike only applies to the second half of the month, so the hike scenario is "old rate × 15 days + new rate × 15 days, divided by 30."
Skip that adjustment and the same price produces a very different number. The nearer the meeting is to mid-month, the more this correction matters.
4. The current baseline
| Item | Value |
|---|---|
| US target range | 3.50–3.75% |
| After a 25bp hike | 3.75–4.00% |
| Bank of Korea policy rate (raised Aug 27) | 3.00% |
| Korea–US gap | 0.75 percentage points |
Why that gap reaches the exchange rate is covered in "What the Korea-US rate gap is."
5. Why 56 and 59 appear together
| Source of difference | Explanation |
|---|---|
| Timestamp | Futures move intraday; the chosen price shifts the answer |
| Effective-rate assumption | The target is a range; top versus midpoint changes the output |
| Instrument | FedWatch uses fed funds futures; some coverage quotes a prediction market |
Which is why practitioners read the change, not the level. The jump from the 30s to 56 percent is the measurement of the speech.
6. How much to trust it
| Strength | Limit |
|---|---|
| Real money is behind the price — positions, not opinions | It is market expectation, not a Fed decision |
| Updates in real time | Reacts late or overshoots on extreme events |
| The method is public and reproducible | Thin liquidity in some maturities distorts it |
The common misreading is turning "56 percent means a hike is more likely" into "56 percent means it will hike." Fifty-six is close to a coin toss — which is exactly the word CNBC used that day.
7. Frequently asked
Do months without a meeting have contracts? Yes. With no FOMC in the month, the rate is assumed constant, so those contracts serve as the reference point for reading the current effective rate.
How do 50bp odds appear? A single contract cannot separate hike sizes. FedWatch uses several maturities together to distribute probability across 25bp, 50bp, hold and cut. Reproducing it from one maturity gives a different answer.
Why are cut probabilities invisible? Probabilities divide 100 percent among possible outcomes. If the market barely prices a cut, that row sits near zero and disappears from view.
Does this touch my loan? Not directly. Rising hike expectations tend to move floating-rate products and credit cards first, while long fixed mortgages have already priced much of it and move less.
8. What is left before September 15
| Date | Event | Why it matters |
|---|---|---|
| Fri, Sep 4 | US August jobs report | Tests Warsh's claim that the labour market is effectively at full employment |
| Mid-September | US August CPI | Whether the inflation trend actually improved |
| Sep 15-16 | FOMC | The day 56 percent becomes 0 or 100 |
Warsh's case was numerical: PCE inflation at 3.7 percent over the past year and 4.1 percent annualised over six months. Better summer readings, he said, did not tell him the underlying trend had meaningfully improved.
9. What we could not confirm
- Specification — contract details and FedWatch's internal adjustments were not read from exchange documents.
- Reproduction — we did not recompute the probability from the August 28 settlement; 56 and 59 percent come from coverage.
- Target range — 3.50–3.75 percent is as of late August.
- Prediction market — the venue and volume behind the quoted price are unverified.
- Illustrative prices — 96.30 and similar are teaching numbers, not quotes.
Sources
- CNBC — September Fed decision is now a coin flip as rate hike odds increase post Warsh
- Benzinga — Fed September Hike Odds Spike to 59% After Warsh's Jackson Hole Speech
- TechTimes — Fed Hike Odds Hit 56%: Bad News for Credit Cards, Neutral for Mortgages
- Yahoo Finance — Rate-hike expectations rise on Warsh speech at Jackson Hole
- FRED (St. Louis Fed) — Federal Funds Target Range, Upper Limit
- BLS — Employment Situation News Release