- Markets now assign a 96% probability to a 25-basis-point Fed rate cut in September 2025.
- The shift follows cooling July inflation data and weakening labor market indicators, with payrolls growing by just 73,000 last month.
- Treasury Secretary Scott Bessent and others advocate for a more aggressive 50-bps cut, but economists warn the Fed may hesitate if inflation remains sticky.
Fed Signals Shift as Economic Data Softens
Traders have all but locked in expectations for a Federal Reserve rate cut in September, with futures markets pricing in a 96% chance of a quarter-point reduction. The move comes after a cooler-than-expected July inflation report and a stark slowdown in job growth, with payrolls expanding by just 73,000—far below forecasts—and significant downward revisions to prior months' figures.
At its latest meeting, the Fed held rates steady at 4.25%-4.50% but acknowledged moderating economic activity, with GDP growth averaging just 1.2% in the first half of 2025. Two FOMC members even voted for an immediate cut, signaling growing dovish sentiment within the central bank.
Political Pressure and Market Reactions
Treasury Secretary Scott Bessent has publicly pushed for a larger 50-bps cut, arguing the Fed is behind the curve. Meanwhile, equities have rallied on expectations of looser policy, though some economists caution that sticky service-sector inflation or a surprise jobs rebound could delay the Fed’s pivot.
Borrowers stand to benefit from lower rates, while savers may see diminished returns. For now, traders are betting heavily on September—but as one strategist noted, 'The Fed’s next move hinges entirely on whether the data cooperates.'