On the morning of 16 September 2026, futures prices put the chance of a Federal Reserve rate rise that day at 92%, according to CME Group's FedWatch tool. The Fed raised rates that afternoon. After a weak jobs report on 2 October, the same prices gave about a one-in-four chance of another rise on 28 October.
Those odds come from Fed Funds Futures. Here is how the contracts work, how a price becomes a probability and what SOFR futures add.
What are Fed Funds Futures? Fed Funds Futures are contracts that settle on the average Effective Fed Funds Rate over one calendar month. The price is 100 minus that average rate, so the price shows the rate traders expect.
A price of 96.12 means traders expect the rate to average 3.88% over the month.
CME's FedWatch tool turns these prices into the chance of a move at each Fed meeting.
SOFR futures work the same way on a different overnight rate. They show where rates are expected to go over several years.
How Fed Funds Futures work
The Federal Funds Rate is the rate banks charge each other for overnight loans. The rate actually paid each day is the Effective Fed Funds Rate. It was 3.88% on 1 October 2026. We explain it in What Is the Fed Funds Rate?
The 30-day Fed Funds Futures contract trades on CME Group's Chicago Board of Trade. There is one contract for each calendar month. At the end of the month, it settles at 100 minus the average daily effective rate for that month.
So the price moves the opposite way to the expected rate:
If traders expect a higher rate, the price falls.
If traders expect a lower rate, the price rises.
A buyer gains if the month's actual rate comes in below the one priced in. A seller gains if it comes in above.
From a price to a probability: a worked example
The next Fed meeting ends on 28 October 2026. A change would take effect on 29 October, so only three days of October would carry the new rate. The November contract shows the October decision more cleanly, because every day of November would carry it.
To keep the sums simple, assume the effective rate stays 0.13 points above the bottom of the Fed's range, as it has since 17 September. Then there are two outcomes:
No change. The rate stays at 3.88%. The November contract settles at 96.12.
A 0.25-point rise. The rate moves to 4.13%. The contract settles at 95.87.
A price between the two shows a chance of each. At a price of 96.06, the expected rate is 3.94%. That is 1/4 of the way from 3.88% to 4.13%, so the price implies a one-in-four chance of a rise.
Source: YX Insights
FedWatch applies the same logic to every meeting, using the contracts around each one.
SOFR futures
SOFR is the rate on overnight loans backed by US Treasury bonds. It tracks the Fed Funds Rate closely. Since April 2018, the two have differed by 0.002 points on average. We explain the rate in SOFR vs LIBOR.
CME listed the first SOFR futures on 7 May 2018. There are two main kinds:
One-month SOFR futures settle at 100 minus the average daily SOFR for the month. They work like Fed Funds Futures.
Three-month SOFR futures settle at 100 minus SOFR compounded over a three-month period. Contracts run for years ahead, so a row of them shows the path of rates the market expects.
Markets move before the Fed does
Futures are one way to see expectations. Treasury yields are another. The 2-year Treasury yield reflects, in large part, where markets expect short-term rates to be over the next two years.
Source: FRED (DGS2, EFFR); YX Insights
On 1 March 2022, the 2-year yield was 1.31%. The Effective Fed Funds Rate was still 0.08%. The 2-year yield had been 0.20% in September 2021. It climbed over the six months before the Fed's first rise, announced on 16 March 2022.
The 2-year yield peaked at 5.19% on 17 October 2023. On 1 October 2026, it was 4.78%, above the effective rate of 3.88%. That gap is consistent with markets expecting further rises.
How the odds change
Expectations move with new data and with what Fed officials say. Three readings from FedWatch show how fast:
16 September, morning. A 92% chance of a rise that day. A 40% chance of another in October.
16 September, after the Chair's press conference. The October chance rose to 49%.
2 October, after the jobs report. Payrolls rose by 29,000. The October chance fell to about one in four.
We cover the jobs report in What Are Nonfarm Payrolls?
What futures prices cannot tell you
A few limits help when reading the odds:
They are prices, so they can include a premium for risk. The implied rate can then differ slightly from what traders expect.
The method assumes 0.25-point steps. A larger move would change the sums.
The odds change daily. A probability two months before a meeting can look very different by the week of it.
Fed Funds Futures turn the market's view of the Fed into a price. Subtract the price from 100 and you have the rate traders expect. We explain how the Fed then delivers its decision in How the Fed Sets Rates.
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DISCLAIMER: This article is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.