Bets on a Fed hold in December jump, but a quarter-point hike is still favored

Traders sharply raised their bets on the Federal Reserve leaving interest rates unchanged after its December meeting on Thursday, but they still expect the central bank to raise rates by a quarter point. A hold remains unlikely, and a quarter-point increase is still the likeliest result.

The reason for the jump is not clear. No recent, sourced event has been found that explains it, and the move came in a burst on Thursday afternoon after the odds had barely changed through the morning.

The bets on a hold had been drifting for weeks. They stayed low through late October, dipped on Oct. 28 when the Fed held rates steady at its latest meeting, then jumped the next day. They eased from Monday through Wednesday, and Thursday's surge took them to their highest point in the recent stretch. Over the same period, bets on a December increase fell but remained in likely territory. Traders also see a hold as likely after the January 2027 meeting, and those bets were little changed.

Across the range of outcomes, traders expect the Fed's decision in December to be a quarter-point increase, with a hold the main alternative. They expect the Fed's rate to end 2026 at 4.25%, within a range of 4% to 4.25%.

The Fed raised its target range to 3.75%-4% in September and kept it there on Oct. 28. Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented, favoring a quarter-point increase. The committee said inflation remained elevated and that more information would help guide its next decision. On Oct. 30, several Fed officials argued for further increases, Reuters reported.

After the Nov. 3 midterm elections, oil prices fell and Treasury yields eased as investors weighed what the results meant for the Iran war and inflation, the Associated Press reported. That is background, and nothing in the available reporting ties it to Thursday's move.

The next major piece of evidence is the October jobs report, due Friday. Incoming labor and inflation data will help shape policymakers' views before the Fed meets Dec. 8-9. The committee will announce its decision after that meeting.