Will the Federal Reserve Cut rates by >25bps at their July 2026 meeting

The yield curve for KXFEDDECISION exhibits a pronounced steepening pattern across the near-to-intermediate term, with the cheapest YES probabilities concentrated in the shortest tenor. At 42 days, the H0 (hold) contract trades at 89%, representing the peak conviction level across all tenors, while the C25 (25bp cut) contract sits at just 5%. Moving to the 91-day bucket, H0 probability compresses to 71%, and this downward drift continues through the 133-day October contract at 74% and the 176-day December contract at 68%. Beyond six months, the curve flattens considerably, with H0 probabilities stabilizing in the 59-68% range through the 540-day December 2027 maturity. The steepness is most acute between 42 and 91 days, where H0 probability falls 18 percentage points, indicating substantial repricing of hold expectations as the near-term decision point passes. The market's current pricing reveals a strong consensus that the Fed will hold rates steady at the July 26 decision, with 89% probability, but signals meaningful uncertainty about subsequent meetings. The steep decline in hold probabilities from July through September and into October suggests traders expect policy divergence—either rate cuts or hikes—to become increasingly likely as the year progresses. The stabilization of H0 probabilities around 60-70% in the outer tenors indicates the market views the longer-term rate path as genuinely uncertain, with neither holds nor cuts commanding overwhelming conviction. This structure reflects a market pricing in a near-term pause followed by potential policy action, with the timing and direction of that action remaining genuinely contested across the forward curve.