Each time the FED raises or cuts the policy rate, it is printed on the front page of major news outlets. However, it is rarely breaking news itself. By design, the FOMC makes sure to give the market enough transparency and hints, so the cut is largely anticipated ahead of time.
The consensus in the US is usually strong enough to make even ChatGPT hallucinate in the past tense when enquired about an upcoming rate cut.
However, when it comes to other countries, transparency is less of a norm, and sometimes the policy change catches the market by surprise. This is often true, for example, of Central European currencies or South Africa.
There are dedicated services such as CME's FedWatch that estimate decision probabilities. The simple framework that works best for me is to look into spreads between the current RFR and forward-looking swap rates for various tenors (Fig 1). I like this approach because it is simple, can be applied universally to any currency (not just USD), and doesn't depend on proprietary probability models.
The attached example shows that on Wednesday, 29th October, just hours prior to the FED announcement, the SOFR fixing to the 2W SOFR IRS was -34 bp, fairly high by this year's standards.
It is worth noting that this methodology combines the magnitude and certainty of a rate jump into a single number. Looking into swap tenors longer than 1M encapsulates the effect of multiple rate announcement.
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