CME FedWatch: September Rate Cut Probability Reaches 91.8%, No Rate Change Likelihood Drops to 8.2%

CME's FedWatch data shows a 91.8% probability of a 25-basis-point rate cut by the Fed in September, up from 82.5% prior to the CPI release. The probability of no rate change is 8.2%. The probability of maintaining rates in October is 2.2%, with a combined 25-basis-point rate cut probability at 31% and a 50-basis-point rate cut probability at 66.7%.

The Federal Reserve (Fed) is anticipated to cut interest rates by 25 basis points in September, according to recent data from CME's FedWatch tool. The probability of a rate cut has significantly increased, climbing to 91.8% from 82.5% before the Consumer Price Index (CPI) release. This shift reflects growing market expectations that the Fed will respond to recent economic indicators, particularly the weaker-than-expected July jobs report [1].

Treasury Secretary Scott Bessent recently commented on the market's pricing of rate cuts, stating that financial markets are pricing in a high likelihood of the Fed cutting rates before the end of the year. Bessent noted that the Fed's decision to hold rates steady at its July meeting was "somewhat a lack of logic" given the market's expectations and the Fed's own economic projections [1].

J.P. Morgan has also adjusted its forecast, now expecting the Fed to cut rates by 25 basis points in September. The brokerage previously forecast one 25-basis-point rate cut in December but now anticipates an earlier move, followed by three more quarter-point cuts before the Fed pauses [2]. This change reflects increased concerns about the labor market and uncertainty surrounding President Donald Trump's latest Fed nomination.

The Fed's decision may hinge on August jobs data. An unemployment rate of 4.4% or higher could justify a larger cut, while a lower reading may prompt resistance from policymakers focused on inflation [2]. The market's current outlook suggests a 25-basis-point cut in September, with a combined probability of 31% for a 25-basis-point cut and 66.7% for a 50-basis-point cut by the end of the year [3].

The Fed's decision to cut rates is expected to be influenced by several factors, including the recent jobs report, tariff-induced inflation concerns, and the appointment of Stephen Miran to the Federal Reserve's governing board. The appointment of Miran, who is critical of the central bank, could intensify internal divisions and potentially lead to three dissents [2].

The market's expectations for rate cuts highlight the Fed's role in managing economic risks and responding to changing economic conditions. As the Fed prepares for its September meeting, investors and financial professionals should closely monitor economic data and the Fed's communications to gauge the likelihood and magnitude of rate cuts.

References:
[1] https://www.foxbusiness.com/economy/bessent-says-market-expects-fed-cut-rates-year-substantial-probability
[2] https://www.hellenicshippingnews.com/j-p-morgan-brings-forward-fed-rate-cut-forecast-to-september/
[3] https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html