U.S. Fed Seen Cutting Rates 25 BPS in September Amid Shifting Market Outlook

The U.S. Federal Reserve is anticipated to implement a 25 basis point rate cut at its September 2025 Federal Open Market Committee (FOMC) meeting, signaling a shift in monetary policy that has gained traction among economists and market participants [1]. A Reuters survey of 110 economists found that 61% expect the rate cut to lower the benchmark federal funds rate to a range of 4.00%-4.25% [1]. Similarly, the CME FedWatch tool indicates a 93% probability of a cut, rising from 55% a month prior [2].

Analysts highlight that a rate cut could drive capital inflows into higher-risk assets such as Bitcoin (BTC) and Ethereum (ETH), with historical trends showing that crypto markets tend to respond positively to monetary loosening [3]. Institutional forecasts, including those from Goldman Sachs, suggest multiple rate reductions may follow, which could further support bullish momentum in the crypto space [3]. This potential shift is expected to impact decentralized finance (DeFi) projects as well, with increased interest and investment anticipated amid the broader market’s risk-on sentiment.

However, the path to a rate cut remains complex. Recent economic data, particularly the Producer Price Index (PPI) for July 2025, showed a 0.9% monthly increase—the largest since June 2022—raising concerns about inflationary pressures at the wholesale level [3]. Bank of America analysts have maintained a stance of no rate cuts in 2025, citing this PPI surprise as a key challenge to the market's optimism [3]. While consumer-level inflation has remained relatively stable, the recent PPI surge introduces uncertainty about its eventual impact on retail prices.

Labor market data also complicates the Fed’s decision. The unemployment rate rose to 4.248% in July, the highest since late 2021, while GDP growth projections have been revised downward to 1.4% for 2025. Additionally, the University of Michigan’s Consumer Sentiment Index has shown declining confidence, further clouding the economic outlook [3]. These factors suggest a mixed economic environment, where the Fed must balance its dual mandate of maintaining low inflation and employment.

Market expectations have evolved as a result of these uncertainties. Traders are now pricing in fewer rate cuts for 2025 and shifting expectations to 2026, reflecting a more cautious outlook [4]. The anticipation of lower borrowing costs has already influenced mortgage rates, which have shown signs of softening amid the expectation of a September cut [5].

The Federal Reserve’s next move will be closely monitored as it seeks to navigate the delicate balance between supporting economic growth and controlling inflation. While a rate cut appears increasingly likely, the recent PPI data introduces a layer of uncertainty that could influence the central bank’s final decision.

Sources:

[1] https://www.reuters.com/business/us-fed-cut-rates-september-once-more-this-year-say-most-economists-2025-08-15/

[2] https://www.thestreet.com/economy/bank-of-america-sticks-to-guns-on-fed-interest-rate-forecast

[4] https://www.cmegroup.com/articles/2025/cuts-or-caution-how-uncertainty-has-shaped-the-feds-path.html

[5] https://www.cleveland.com/news/2025/08/weekly-mortgage-rates-fall-again-as-september-rate-cut-seems-likely.html