The number you see next to the next target range on the CME Fed Watch tool isn't the probability of a hike. It's the probability of one specific outcome. To get the real odds, you have to add the higher ranges together, and once you do that across the next few meetings the picture looks different than most people assume. Craig Bewick from the CME walks through what the tool is actually built from. It isn't an economist's forecast or an analyst survey. It's derived from fed funds futures, priced at 100 minus the expected fed funds rate, which tracks the effective rate that sets within the Fed's target range each night. It's where money is positioned rather than what anyone thinks. Also covered: the four tabs and what each one is good for, why the contract for a meeting month takes an arithmetic average of the effective rate and why that makes the following month's contract a cleaner read on a hike. SOFR as the other way to take a direct position on short-term rates, how it differs fro...