Meeting Preview

Federal Reserve Meeting Preview — Rate Decision Analysis

Q: "What does the FOMC decide at its meetings?"

"The Federal Open Market Committee (FOMC) sets the target range for the federal funds rate, which is the interest rate at which banks lend reserve balances to other banks overnight. This rate influences all other interest rates in the economy, including mortgage rates, auto loans, and savings yields."

Q: "How are rate change probabilities calculated?"

"Rate change probabilities are derived from federal funds futures and options contracts traded on the CME. These financial instruments reflect the collective market expectation for the future path of the fed funds rate. Our methodology follows the CME FedWatch approach."

Q: "What is the Taylor Rule and how does it relate to Fed policy?"

"The Taylor Rule is an economic formula that prescribes the optimal interest rate based on inflation deviation from target and the output gap. When the actual fed funds rate is below the Taylor Rule rate, policy is considered accommodative; when above, it is considered restrictive."

Q: "How often does the Federal Reserve change interest rates?"

"The FOMC meets eight times per year (roughly every six weeks) to review economic conditions and decide on the target federal funds rate. However, rate changes do not happen at every meeting — the Fed may hold rates steady for extended periods."

Market-implied probabilities and scenario analysis for the next FOMC meeting

March 16, 2026 | Updated: March 16, 2026 | Michael Adams | 8 min read

Key Takeaways

Market pricing reflects current expectations derived from interest rate futures and options data.
Our Taylor Rule model provides an independent assessment of where the fed funds rate should be based on inflation and employment data.
The rate gap between the current policy rate and the model-implied theoretical rate indicates the policy stance direction.

Current Market Expectations

The Federal Reserve’s Federal Open Market Committee (FOMC) meets regularly to determine the direction of U.S. monetary policy. The committee’s primary tool is the federal funds rate target, which cascades through the entire yield curve and affects borrowing costs economy-wide.

Current market pricing, derived from interest rate futures contracts, provides a probabilistic view of the next rate decision. These probabilities update in real-time as new economic data is released and market expectations shift.

June 8, 2026

Rate probability for fed meeting 2026-06-08

June 11, 2026

Rate probability for fed meeting 2026-06-11

June 13, 2026

Rate probability for fed meeting 2026-06-13

Model-Based Assessment

Our Taylor Rule model provides an independent, formula-driven assessment of the appropriate policy rate. By comparing the model-implied “theoretical rate” with the current fed funds rate, we can gauge whether monetary policy is currently restrictive, accommodative, or neutral relative to economic fundamentals.

Current Rate: 3.62% Theoretical Rate: 4.91% Rate Gap: -1.28%

A negative rate gap suggests policy is more accommodative than the model prescribes, while a positive gap indicates a relatively restrictive stance.

Rate Gap Evolution

The chart below shows how the gap between the actual policy rate and the model-implied rate has evolved over time, revealing shifts in the Fed’s policy stance.

Economic Context

Key macroeconomic indicators driving the model assessment:

Inflation (CPI): N/A (target: 2.0%)
Unemployment Rate: 4.4%
Output Gap: +0.08%

Scenario Analysis

Scenario 1: Rate Cut

A rate cut would be warranted if inflation continues to moderate toward the 2% target while labor market conditions show signs of softening. This would narrow the rate gap and shift policy toward neutral.

Scenario 2: Hold

Holding rates steady would be the base case if current economic conditions remain broadly stable. The FOMC may prefer to accumulate more data before adjusting the policy stance.

Scenario 3: Rate Hike

A surprise hike would signal concern about persistent inflation or an overheating economy. This scenario typically has low market-implied probability in the current environment.

Methodology

This analysis combines multiple data sources:

Market-implied probabilities from CME interest rate futures
Taylor Rule assessment using the latest CPI, unemployment, and output gap data
Historical model data tracking the evolution of the rate gap over time

For full methodology details, see our methodology page.

Rate Decision Probabilities

Frequently Asked Questions

The Federal Open Market Committee (FOMC) sets the target range for the federal funds rate, which is the interest rate at which banks lend reserve balances to other banks overnight. This rate influences all other interest rates in the economy, including mortgage rates, auto loans, and savings yields.

Rate change probabilities are derived from federal funds futures and options contracts traded on the CME. These financial instruments reflect the collective market expectation for the future path of the fed funds rate. Our methodology follows the CME FedWatch approach.

The Taylor Rule is an economic formula that prescribes the optimal interest rate based on inflation deviation from target and the output gap. When the actual fed funds rate is below the Taylor Rule rate, policy is considered accommodative; when above, it is considered restrictive.

The FOMC meets eight times per year (roughly every six weeks) to review economic conditions and decide on the target federal funds rate. However, rate changes do not happen at every meeting — the Fed may hold rates steady for extended periods.

About the Author

Michael Adams

Independent researcher with 20+ years in financial services, specializing in interest rate derivatives, central bank policy analysis, and econometric modeling.

Key Takeaways