Fed December Rate Cut Odds Surge to 85% After Soft U.S. PPI Data

The probability of a 25-basis-point Federal Reserve rate cut at the December 16–17 FOMC meeting has jumped to 85%, according to CME FedWatch Tool data , following a much cooler-than-expected U.S. Producer Price Index (PPI) report.

Key Takeaways from the PPI Release

• Headline PPI (MoM): +0.0% (vs +0.2% expected, prior +0.4%)
• Core PPI (MoM, ex food & energy): +0.1% (vs +0.3% expected)
• Headline PPI (YoY): +2.4% (lowest since February 2025)
• Core PPI (YoY): +3.1% (down from 3.3% prior)

The softer-than-forecast wholesale inflation print reinforced the narrative that price pressures are easing faster than anticipated, giving the Fed greater room to prioritize labor market support.

Market Reaction

• 2-year Treasury yields fell 15 basis points to 4.02%
• U.S. dollar index (DXY) dropped 0.8%
• S&P 500 futures rose 1.2%
• Bitcoin briefly reclaimed $89,000 before settling near $88,500

December cut odds had hovered around 68% earlier in the week after dovish comments from Governors Waller and Daly. The PPI surprise pushed the probability sharply higher, with some desks now assigning a 12% chance of a larger 50 bps move if upcoming CPI and payrolls data remain soft.

The Bigger Picture

With core PCE still above target but trending lower, and unemployment at multi-year highs, the Fed now faces a clearer path to easing. Markets are pricing in three to four total cuts by mid-2026, bringing the fed funds rate toward a neutral level of 3.5–4.0%.

In summary, the unexpectedly tame October PPI data has dramatically increased conviction in a December rate cut, pushing odds to 85% and fueling a broad risk-on move across equities, bonds, and cryptocurrencies as traders bet on a more supportive Fed policy stance heading into 2026.