by Calculated Risk on 7/18/2006 09:06:00 PM

Update: Check out Dr. Tim Duy's Fed Watch: Living on a Knife Edge

The Cleveland FED presents the Fed Funds Rate probabilities based on options on federal funds futures. For the next two meetings (August and September), the current probabilities are interesting:

Click on graph for larger image (new window).

For the August meeting, the highest probability is 5.50%; another 25 bps hike.

For the September meeting, the highest probability is 5.25%.

This implies either a pause at both meetings, or a rate increase in August followed by a rate decrease in September.

I think this is the first time in this cycle that we've seen the highest probability FED Funds rate be lower for the further out meeting.