Rebuild a December Rate-Cut Probability From Rules and Futures

A prediction-market percentage and a CME FedWatch percentage both summarize market prices under specific rules and assumptions. Neither is a Federal Reserve promise. To audit a December rate-cut claim, preserve the historical snapshot, identify the exact meeting and target range, parse settlement terms, rebuild the futures calculation, and explain differences in liquidity, fees, participants, and outcome definitions.

Anchor the historical claim

The July report on an 84% December rate-cut probability compares Polymarket, Kalshi, and CME FedWatch readings at a particular moment. Do not substitute today's probability when explaining that article.

Record platform, market name, URL, capture time in UTC, displayed percentage, bid, ask, last trade, volume, liquidity, outcome set, and source screenshot or API response.

Identify the year and meeting date. “December cut” is incomplete because every year can have a December meeting and a market may resolve against a specific announcement.

Confirm the official policy event

The Federal Reserve's FOMC calendar lists meeting dates, policy statements, minutes, and projection materials. Use the policy statement named in market rules as the authoritative outcome where applicable.

Record the target range before the meeting and enumerate possible post-meeting ranges in basis points. A 25-basis-point cut means a 0.25 percentage-point decrease in both bounds when the range moves normally.

Separate a cut at the December meeting from a rate being below today's level by December. An earlier cut followed by no December change can satisfy one formulation and fail another.

Parse prediction-market resolution

Copy the question, resolution source, cutoff time, exceptional-event clauses, treatment of unscheduled meetings, rounding, cancellation, and dispute process. Save the rules version used when the price was captured.

Check whether outcomes are exhaustive and mutually exclusive. Contracts for exactly 25 basis points, no change, and 50 or more may be separate markets whose displayed probabilities do not sum cleanly after spreads and fees.

A last trade at $0.84 is often described as 84%, but executable belief lies between available bid and ask and may move with a modest order in a thin market.

Inspect liquidity and participant constraints

Record depth near the displayed price, recent trade size, total volume, position limits, geographic eligibility, funding rails, fees, and settlement delay. These features affect who can correct a mispricing.

Calculate the cost to buy or sell a meaningful quantity across the book rather than treating the last price as available for any size.

Market probability is risk-neutral and price-based under the contract's structure; it is not a scientific survey of economists or FOMC members.

Understand the FedWatch input

CME's FedWatch methodology derives meeting probabilities from 30-Day Federal Funds futures and assumptions about effective-rate paths and 25-basis-point increments.

Archive the relevant futures settlements or live prices, current effective federal funds rate, meeting calendar, and target range. Use consistent data times when reproducing the probability tree.

Monthly futures reflect the expected average effective rate across all days in a contract month, so a meeting partway through the month requires separating days before and after the decision.

Rebuild the probability tree

Start from a nearby month without a scheduled meeting when the methodology requires it. Infer expected effective rates for meeting months and express each as a weighted combination of possible target outcomes.

Solve for nonnegative probabilities that sum to one under the selected outcome grid. Test arithmetic against the published FedWatch snapshot and document rounding.

If results differ, inspect futures timestamp, effective-rate assumptions, contract choice, meeting dates, number of possible moves, and whether the interface uses an aggregated view.

Run sensitivity checks by moving the futures input a small number of ticks and recalculating every outcome probability. This shows how much of an apparent disagreement can come from ordinary price movement or rounding. Reject any reconstructed tree that produces probabilities below zero or a total materially different from one.

Keep source precision through the calculation and round only the published table. A displayed 84% may represent a range of underlying values, especially when interfaces round to whole percentage points.

Compare like outcomes

Map the Polymarket contract to the exact FedWatch bucket. “At least one cut,” “exactly 25 basis points at the meeting,” and “target range ends at 350–375 basis points” are not interchangeable.

Create a crosswalk with platform wording, qualifying outcomes, resolution date, price timestamp, spread, fees, and implied range. Compare midpoint estimates only after the crosswalk passes.

Differences can persist because of definitions, timing, trader populations, balance-sheet constraints, liquidity, and transaction costs. They are not automatic arbitrage profits.

Track probabilities without hindsight

Store daily or intraday snapshots and link changes to timestamped economic releases, policy communications, and market moves. Avoid explaining a probability change with news published afterward.

Score calibration across many comparable contracts: events priced near 80% should occur roughly that often over a sufficiently large, well-defined sample. One correct December outcome does not validate every estimate.

Publish the final policy result separately from the historical forecast. A well-audited 84% estimate can still lose, because it explicitly allowed a meaningful alternative. Rules, data, liquidity, and calculation notes make that uncertainty intelligible instead of converting a market price into certainty.