Let us now calculate the probabilities for the July meeting under the “conditional” approach: [(5.375% - 5.250%) / 0.25%] = 50%. This approach calculates probabilities which are conditional on the rates implied by the June contract.

Now we can build the conditional matrix of where rates might land in the future:

As shown above, the July probabilities are calculated by tracing all the possible paths that rates can take based on the individual meeting probabilities. In order to have no rate change by the end of July, you would need the 50% chance of no change in June and the 50% chance of no change in July both to be true. Conversely, in order to see precisely one 25 bp hike by the end of July, you could either see no change in June and a hike in July, or the inverse: a hike in June and no change in July. Finally, the conditional view indicates that there is a small chance that you would see two 25 bp hikes by the end of July, if a hike happens in each of the June and July meetings.

This is, of course, one valid way to interpret the price signals from the Fed Funds futures contracts. An alternative way to interpret these signals is the “aggregated” view of rate changes. In practice, this means not compounding the individual meeting probabilities of hikes/cuts but, rather, calculating the number of hikes or cuts priced in by a given point in time in the future in comparison to the current rates.

Let us recalculate the individual meeting probability for July, but now under the “aggregated” approach. Comparing the rate implied by the July contract with the current rate implied by the May contract, we have: [(5.375% - 5.125%) / 0.25%] = 100%. This can be interpreted to mean that the market is pricing in exactly one 25 bp hike between May and July.

The aggregated view of Fed Funds futures implied probabilities indicates that the market is pricing in a hike by the end of July, but it is uncertain of when that hike may take place. The prices imply a 50% chance of this hike taking place in June, and a 50% of it taking place in July. Thus leading to the interpretation of a 100% chance of one 25 bp hike by the end of July being priced in by the market.

By comparing and contrasting both views, one can get a more well-rounded understanding of market expectations on the magnitude and timing of U.S. policy rate changes. The CME FedWatch Tool facilitates this comparison via the “Probabilities” tab, shown below (with numbers as of May 2, 2024):

CME Fedwatch Tool - Conditional Meeting Probabilities
CME Fedwatch Tool - Aggregated Meeting Probabilities

Arthur Lobão
Arthur Lobão
Arthur Lobão

 works in the Interest Rate Products team at CME Group, focusing on Short-Term Interest Rate futures, including SOFR, Fed Funds, and ESTR futures.

All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.

CME Group is the world’s leading derivatives marketplace. The company is comprised of four Designated Contract Markets (DCMs). 
Further information on each exchange's rules and product listings can be found by clicking on the links to CME, CBOT, NYMEX and COMEX.

© 2025 CME Group Inc. All rights reserved.