Most Traders Read the Fed Watch Tool Wrong. The Headline Number Isn't the Odds | CME x tastylive

The number you see next to the next target range on the CME Fed Watch tool isn't the probability of a hike. It's the probability of one specific outcome. To get the real odds, you have to add the higher ranges together, and once you do that across the next few meetings the picture looks different than most people assume. Craig Bewick from the CME walks through what the tool is actually built from. It isn't an economist's forecast or an analyst survey. It's derived from fed funds futures, priced at 100 minus the expected fed funds rate, which tracks the effective rate that sets within the Fed's target range each night. It's where money is positioned rather than what anyone thinks. Also covered: the four tabs and what each one is good for, why the contract for a meeting month takes an arithmetic average of the effective rate and why that makes the following month's contract a cleaner read on a hike. SOFR as the other way to take a direct position on short-term rates, how it differs from fed funds as a secured rate, and why it replaced LIBOR. Then the short end against the long end, what steepeners and flatteners are actually expressing, and why the Fed has far less control over the 30-year than over the overnight rate. The timing matters this week. PPI and CPI are the last two major inflation prints before the September 16th decision, and the Fed is in its blackout window, so positioning is the only signal left. And a stretch worth sticking around for: why 2022 was the hardest trading year of a career, and how a two-year inversion trade that looked like free money taught a lesson about how long "eventually" can take. --- This content is for educational purposes only and does not constitute financial advice. Options involve risk and are not suitable for all investors. 📊 tastylive: https://www.tastylive.com/ 📰 Get Tom Preston's pre-market analysis every morning: https://www.tastylive.com/newsletters 📘 FREE Options Strategy Guide: https://tinyurl.com/bp9ms763 📱 Follow tastylive on X: https://x.com/tastyliveshow #options #trading #investing #finance #stocks #stockmarket #marketanalysis #tradereducation #financialeducation #tastylive tastylive is a real financial network, producing hours of live programming every day. Follow along as our experts navigate the markets, provide actionable trading insights, and teach you how to trade. With over 120 original segments, and over 25 personalities, we'll help you take your trading to the next level, whether you are new to trading or a seasoned veteran. tastylive content is created, produced, and provided solely by tastylive, Inc. ("tastylive") and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. Options, futures, and futures options are not suitable for all investors. Prior to trading securities, options, futures, or futures options, please read all applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange Traded Options Risk Disclosure Statement found at https://tastytrade.com/disclosures/. Past performance is not indicative of future results. Performance is not presented net of all commissions, fees, and expenses. Multi-leg option strategies incur higher transaction costs than single leg trades as they involve multiple commission charges. Examples provided are for illustrative, informational, and educational purposes only and are not intended to be reflective of results you can expect to achieve. Supporting documentation for any claims, including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer.