The Fed Funds options market offers a way to assess the market-based probabilities of three scenarios: Soft-Landing, Higher for Longer and Recession.

Since the beginning of the year the soft-landing probability slid from 80% to 55%, before rebounding on Powell’s recent dovishness. The higher-for-longer has surged from 5% to 30%. The recession probability is hitting new lows at just 7.5%.

The recent change in the market-based probabilities is consistent with the convergence of the end of 2024 market probability and the Dots.