Probability of Fed Rate Cut in September at 87.3%: FedWatch

According to CME's "FedWatch," the probability of a Fed rate cut in September is 87.3%, with a 12.7% chance of keeping rates unchanged. In October, the probability of keeping rates unchanged is 6.4%, with a cumulative probability of a 25 basis point rate cut at 50.6% and a cumulative probability of a 50 basis point rate cut at 42.9%.

The Federal Reserve (Fed) has been under intense scrutiny as investors and financial professionals alike assess the likelihood of a rate cut in the coming months. According to CME's "FedWatch" tool, the probability of a Fed rate cut in September has reached 87.3%, with a 12.7% chance of keeping rates unchanged [1]. This significant shift in market expectations highlights the growing concern among investors regarding the current economic landscape.

The rise in the probability of a rate cut is attributed to several factors. Jerome Powell, the Federal Reserve Chair, recently indicated that a rate cut could be on the table at the Fed's September meeting, although he did not commit to a specific action [2]. Powell's remarks acknowledged the growing risks to the job market while also noting the potential for higher inflation due to tariffs. This cautious stance has led to a more aggressive market expectation for easing monetary policy.

The economic data has also played a crucial role in shaping these expectations. The latest jobless claims report showed an increase of 235,000, which was higher than expected and contributed to the growing caution among market participants [3]. While consumer spending remains strong, the Fed must carefully balance the risks of premature easing against the potential for continued price pressures.

Looking ahead, the probability of keeping rates unchanged in October has decreased to 6.4%, with a cumulative probability of a 25 basis point rate cut at 50.6% and a cumulative probability of a 50 basis point rate cut at 42.9% [1]. These figures underscore the ongoing uncertainty in the policy environment and the importance of continued data-driven decision-making by the Fed.

The Fed's strategic framework, which emphasizes its maximum employment mandate hinging on price stability, will continue to guide its policy decisions [2]. As the September meeting approaches, all eyes will remain on both economic developments and central bank communications for further clarity.

In summary, the probability of a Fed rate cut in September is high, with market expectations shifting in response to recent economic data and Powell's remarks. The ongoing uncertainty in the policy environment underscores the need for continued vigilance and data-driven decision-making.

References:
[1] https://www.aljazeera.com/economy/2025/8/22/us-fed-reserve-chair-powell-opens-door-to-september-rate-cut
[2] https://www.ainvest.com/news/probability-fed-rate-cut-september-drops-71-5-jobless-claims-rise-235000-2508/
[3] https://www.ainvest.com/news/ethereum-news-today-crypto-market-surges-5-fed-signals-rate-cuts-750m-shorts-liquidated-2508/