Fed Rate Cut in September Likely as Weak Labor Market and Inflation Easing Boost Chances to 64%

Analyst forecasts suggest the Federal Reserve may resume its rate-cutting cycle at the September FOMC meeting, driven by evolving economic conditions and political dynamics. Bank Pictet analysts highlighted in a report that weakening private consumption and reduced investment plans post-July indicate a softening demand environment, justifying a shift toward looser monetary policy in the second half of 2025. They attributed the delay in cutting rates this month to inflation uncertainty following tariff hikes and pressure from President Trump to act earlier [1]. The Fed’s July decision to maintain the key rate between 4.25% and 4.5% reflected its focus on inflation control and resilient labor markets, with a 97.4% probability of inaction recorded in policy futures [12].

Market positioning for a September cut has gained traction, with interest-rate futures signaling a 64% chance of a reduction by the central bank’s next key meeting, according to the CME FedWatch tool [6]. Analysts like Seth R. Freeman emphasized that the likelihood of a cut remains contingent on data outcomes, particularly a potential labor market slowdown, which could accelerate policy easing [2]. TheStreet reported that Fed watchers are monitoring the September FOMC for a rate cut if inflation from tariffs eases and unemployment rises [5]. Similarly, Morningstar noted that signs of a weakening economy or declining consumer confidence could bolster the case for September or October cuts [3].

The Fed’s cautious approach has been underscored by mixed market signals. While Treasury markets remain skeptical, with the 30-year yield nearing 5% and no rate cut priced in by September, futures markets show heightened anticipation of easing [10]. Analysts at AInvest acknowledged the central bank’s “cautious” stance but stressed that shifting conditions could prompt adjustments, even as inflation monitoring and labor resilience remain central to its calculus [12]. News of Bahrain highlighted the risk of a “sudden labor market weakening” compelling earlier action, aligning with broader market speculation about flexibility in policy responses [7].

Political pressures also play a role. TheStreet observed that a September cut would benefit borrowers, reflecting a potential pivot from tightening to accommodative policy [5]. However, Wolf Street noted divergent views on timing, with Treasury markets still pricing out September cuts despite CME-derived probabilities [10]. The Fed’s decision will ultimately hinge on real-time data, balancing inflation control with growth support amid a backdrop of economic uncertainty.

Sources:

[1] [Analyst: The Fed May Restart Rate Cuts in September](https://www.theblockbeats.info/en/flash/304803)

[2] [Fed Likely to Hold Steady, but September Rate Cut Hopes Hinge on Data](https://m.economictimes.com/markets/expert-view/fed-likely-to-hold-steady-but-september-rate-cut-hopes-hinge-on-data-seth-r-freeman/articleshow/122946879.cms)

[3] [Week Ahead for FX, Bonds: Fed Decision, U.S. Jobs Data](https://www.morningstar.com/news/dow-jones/20250728741/week-ahead-for-fx-bonds-fed-decision-us-jobs-data-tariff-deadline-in-focus)

[5] [A Fed Interest Rate Cut Might Shake Up Your Finances Next Week](https://www.thestreet.com/fed/will-a-fed-interest-rate-cut-shake-up-your-finances-next-week)

[6] [Shaky Trump-Powell Truce Could Break Next Week with Fed Decision](https://www.washingtonexaminer.com/policy/finance-and-economy/3482724/powell-trump-interest-rates-federal-reserve-decision/)

[7] [US Fed Poised to Hold Off on Rate Cuts, Defying Trump](https://www.newsofbahrain.com/business/116321.html)

[10] [Treasury Market Still Sees No Rate Cut by September](https://wolfstreet.com/2025/07/25/treasury-market-still-sees-no-rate-cut-by-september-30-year-treasury-yield-near-5-the-yield-curve-and-real-mortgage-rates/)

[12] [What To Expect From The Fed’s Interest Rate Decision This ...](https://www.investopedia.com/what-to-expect-from-the-fed-s-interest-rate-decision-july-11778885)