When it comes to when and how much the Federal Reserve will change the Fed funds rate, who ya gonna believe, the Fed or the CME’s Fed fund futures trading?

After watching the Fed futures activity for years, I can say with confidence that markets have so far had a better handle on rates than even the Fed “dot plots” from the knowledgeable members of the Federal Open Market Committee. Over the past five years, time and time again, the futures turned out to be more accurate than the Fed itself, often times signally up to a year in advance that the Fed would eventually turn weak-kneed and cut, despite no-cut rhetoric often emanating from policymakers.

Currently, the CME futures say the probability is 68% that the Fed will cut another 25 basis points from the Fed funds rate at the end of the month, bringing the target band down to 1.50%-1.75%. That’s down from 80% the week before, but still up from 45% the week before that. This suggests that investors are having some second thoughts, but still look for a cut.

Moreover, investors should beware that there is some cognitive dissonance on the subject. You will see some Fed officials quoted as being against the cut or that it’s not a done deal. For example, let’s look at the Fed’s monthly minutes, released last wee...

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