Fed Rate Cut Probability Dips to 40% Amid Inflation Concerns

The probability of a Federal Reserve rate cut in the near term has dropped to 40%, a significant decline from the 63% chance previously anticipated before the Fed’s July policy announcement. This marks a notable shift in market expectations for monetary easing and reflects growing uncertainty about the broader economic outlook. The Federal Reserve chose to maintain interest rates within a range of 4.25% to 4.5%, emphasizing that inflation remains “elevated” and that further data is needed before any decision can be made regarding potential rate reductions [1].

Federal Reserve Chair Jerome Powell underscored a cautious, data-dependent approach, noting that no decisions have yet been finalized for the upcoming September meeting. This stance was interpreted as a signal of prudence, especially given concerns over rising U.S. tariffs and their potential to exacerbate inflation. Inflation has now risen for four consecutive months, reaching 2.7%, and Powell warned that a prolonged trade conflict could threaten the central bank’s 2% inflation target [2].

The shift in the Fed’s messaging has already prompted a recalibration in risk appetite across financial markets. Investors are adjusting their positions, with many scaling back bullish exposure. In the cryptocurrency sector, the delayed timeline for rate cuts has affected momentum. While the market initially dipped after the announcement, prices have since stabilized, with total market capitalization remaining near $3.94 trillion in a range-bound pattern. One analyst suggested that a bull market may still unfold, but at a slower pace, with broader liquidity conditions potentially offering support for a future rebound [4].

The Fed’s decision to hold rates drew dissent from two officials—Christopher Waller and Michelle Bowman—who supported a 25-basis-point cut. Their positions highlighted an internal debate over whether to prioritize price stability or stimulate economic growth. The majority of the Federal Open Market Committee, however, chose to maintain rates, reflecting a current policy focus on controlling inflation [6].

Despite the reduced likelihood of a September rate cut, markets still expect one to two reductions before the end of the year. Henrik Andersson, chief investment officer at Apollo Capital, noted that while the Fed’s decision was not a surprise, the uncertainty around trade policies has pushed back the timeline for easing [7]. Equity markets have responded with a more measured advance, with indices such as the S&P 500 showing slower momentum as investors adapt to the evolving policy environment [8].

Looking ahead, the market will closely monitor key economic indicators and the next FOMC meeting. A shift in the inflation trajectory or a stabilizing labor market could influence the Fed’s decision-making process. Until then, financial markets are navigating a period of uncertainty, with expectations for rate cuts reduced and the path of monetary policy remaining unclear [1].

Sources:

[1] TradingView - Rate Cuts Are Off the Table — or Delayed (https://www.tradingview.com/markets/futures/ideas/page-2/)

[2] FastBull - IC Markets Europe Fundamental Forecast (https://m.fastbull.com/institution-article/ic-markets-europe-fundamental-forecast--30-july-4337661_0)

[4] AInvest - Fed Rate Cut Probability Falls 40% Amid Inflation Concerns (https://www.ainvest.com/news/fed-rate-cut-probability-falls-40-inflation-concerns-2507/)

[8] Yahoo - Stock Market Live, Quotes, Business & Finance News (https://finance.yahoo.com/research?report_type=Technical%20Analysis)