Traders see good chance the Fed cuts again in December then skips in January

Expectations for a December interest rate cut remained strong after the Federal Reserve trimmed rates by a quarter percentage point in November, but market pricing is suggesting the likelihood of a “skip” in January.

On Thursday afternoon, the U.S. central bank lowered the federal funds rate — which determines what banks charge each other for overnight lending — to a target range of 4.5% to 4.75%.

Before the Fed released this decision at 2 p.m. Eastern Time, market pricing pointed toward a 67% chance of another quarter-point cut in December and a 33% chance of a pause that month, according to the CME FedWatch tool.

The probability of a quarter-point December rate cut rose to more than 70% following the meeting, while the chances of a pause slipped to nearly 29%. Future rate probabilities found in the CME FedWatch tool are derived from trading in 30-day fed funds futures contracts.

Meanwhile, the odds that the Federal Reserve would skip an interest rate cut in January was around 71%. This was slightly higher from 67% before the release of the Fed’s November decision on Thursday afternoon.

— CNBC’s Jeff Cox contributed to this report.