Investors lower rate cut odds as inflation and tariffs raise Fed hold possibility

Markets had largely anticipated that Federal Reserve Chair Jerome Powell would signal a rate cut during his speech at the Jackson Hole Symposium in early August, a key event for monetary policy updates. The expectation of a September cut was especially strong, with investors initially pricing in over a 95% probability of a rate reduction. However, as the event approaches, shifting economic data has started to challenge that assumption, with the odds of a cut now hovering just below 85% [1].

The recent Producer Price Index (PPI) data, which showed the fastest annual rise since March 2022, has contributed to the growing uncertainty. While consumer inflation data had previously bolstered confidence in a cut, core inflation remains above the Fed’s 2% target at over 3%. Analysts warn that the full economic impact of President Trump’s proposed tariff policy could also delay the Fed’s ability to ease monetary policy [1].

Bank of America, one of the few institutions forecasting a hold, has highlighted the risks of tightening policy for longer than expected. “With inflation essentially stuck over the past year, the tariff passthrough that we still expect, and the labor supply story keeping the unemployment rate historically low, we still think there is a strong case for the Fed to remain on hold,” wrote global economists Claudio Irigoyen and Antonio Gabriel [1].

The Jackson Hole symposium, traditionally a venue for major policy signals, is expected to bring clarity as the event unfolds from Thursday to Sunday. Deutsche Bank noted that Powell’s speech typically plays a pivotal role in setting the stage for future policy moves. This year’s speech, however, has a slightly different focus, with the title on the Fed’s website reading “Economic Outlook and Framework Review.” This hints at a potential re-evaluation of the 2020 policy framework, which shifted toward average inflation targeting and a more flexible stance on full employment [1].

Henry Allen, a macro strategist at Deutsche Bank, emphasized the significance of any framework review. The 2020 shift contributed to a period of inflationary pressure, and there are expectations that the Fed could now move toward a more pre-emptive stance, tightening policy in anticipation of potential inflationary risks rather than reacting after the fact [1].

If Powell opts for a prolonged hold, it would mark a clear departure from previous expectations. Just a week ago, Treasury Secretary Scott Bessent was publicly questioning whether a larger cut was warranted based on the weak jobs report, which painted a more dire picture of the labor market than initially expected [1]. Yet the latest PPI figures have cooled enthusiasm, with some analysts now leaning toward the view that the Fed will remain cautious.

Prior to the opening bell in New York, market sentiment was mixed. The S&P 500 futures were flat, while European indices showed modest declines. In Asia, the Nikkei 225 and China’s CSI 300 posted gains. Investors are now bracing for the event to unfold, with the Fed’s messaging likely to shape the near-term direction of global markets [1].

Source: [1] Wall Street is banking that Powell will signal a rate cut at Jackson Hole—but the closer it gets, the less likely it looks (https://fortune.com/2025/08/18/powell-jackson-hole-cut-preview-chances-lowering-inflation/)