Fed Rate Cut Probability Falls to 40% Amid Inflation Concerns

The likelihood of a Federal Reserve rate cut in the near term has fallen to 40%, down from 63% prior to the Fed’s July policy announcement, marking a significant shift in market expectations for monetary easing [1]. The Fed’s decision to hold interest rates steady between 4.25% and 4.5% came amid uncertainty surrounding the economic outlook, which the central bank described as “remains elevated.” Federal Reserve Chair Jerome Powell emphasized a wait-and-see approach, noting that no decisions had been made for the upcoming September meeting, and any future action would depend on incoming economic data [2].

Powell’s comments reflected growing concerns over the impact of rising U.S. tariffs on inflation, which has been trending upward for four consecutive months and currently stands at 2.7% [3]. He also highlighted the risk that a prolonged trade conflict could undermine progress toward the Fed’s 2% inflation target. Comerica Bank’s chief economist, Bill Adams, noted that if the unemployment rate stabilizes and inflationary pressures persist, justifying a rate cut in the near term would become increasingly difficult [4].

The Fed’s cautious stance has had immediate implications for financial markets. The expectation of delayed rate cuts has led to a recalibration in risk appetite, with investors tempering their bullish positioning. In the crypto market, one analyst suggested this could result in a slower-paced bull run, although the broader liquidity environment may still provide a floor for a future rebound [5]. While crypto markets briefly dipped after the announcement, they have since stabilized, with total market capitalization remaining near $3.94 trillion within a range-bound trading pattern [6].

Two Fed officials, Christopher Waller and Michelle Bowman, dissented from the decision to hold rates, the first such occurrence in 30 years. They supported a 25-basis-point rate cut, underscoring the internal debate over the appropriate policy path. However, the majority of the Federal Open Market Committee opted to maintain rates, prioritizing price stability over immediate economic stimulus [7].

Despite the reduced probability of a rate cut in September, the market still anticipates one to two reductions before the end of the year. Apollo Capital’s chief investment officer, Henrik Andersson, noted that while the Fed’s decision did not come as a surprise, the uncertainty around tariffs has delayed the expected timeline for easing [8]. The equity markets have responded with a more measured advance, with indices like the S&P 500 showing slower momentum as investors adjust to the evolving policy landscape [9].

Going forward, the focus will remain on 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, the market is navigating a period of uncertainty, with rate-cut expectations diminished and the path of monetary policy remaining unclear.

Source: [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)

[3] CoinMarketCap - Slower bull market ahead? Fed rate cut probability falls to 40% (https://coinmarketcap.com/community/articles/688b03ddeccca1364c69585a/)

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