Markets Price 92.1% Chances of Fed Rate Cut in September as Inflation Eases

Markets have priced in a 92.1% probability that the U.S. Federal Reserve will cut interest rates at its September meeting, signaling a significant shift in expectations as inflation appears to be cooling and economic indicators suggest a more stable outlook [1]. This growing confidence among investors and analysts points to a potential 25-basis-point reduction, which would bring the benchmark rate to the 4.00%-4.25% range [2]. Such a move would mark the first rate cut of the year and reflect a loosening of monetary policy after months of keeping rates elevated to combat inflation.

The anticipation of a rate cut is already influencing financial markets, with fixed income markets factoring in the likelihood of action despite mixed economic data. While a hotter-than-expected wholesale inflation report has complicated the Fed’s decision-making, the cooler-than-expected Consumer Price Index (CPI) for July—rising 2.7% year-over-year—has reinforced hopes for a reduction [3]. This data point suggests that while inflation remains a concern, it is no longer accelerating at the alarming pace that had justified keeping rates high for an extended period.

Mortgage rates have already begun to respond to these expectations. In the week ending August 14, the 30-year fixed-rate mortgage averaged 6.66%, down from 6.70% the previous week. The 15-year fixed-rate mortgage also fell, averaging 5.72%. These declines, though modest, indicate that lenders are adjusting to the changing interest rate environment ahead of the Fed’s decision [4].

However, recent inflation data has introduced some uncertainty. Core CPI rose 0.3% month-over-month and 3.1% year-over-year, the fastest pace in five months, driven by continued increases in shelter costs and other essentials. This suggests that the Fed remains cautious about overreacting to what may still be early signs of easing inflation [5].

Despite this, the broader economic picture supports a rate cut. A slowing labor market and lower-than-expected inflation growth provide the Federal Open Market Committee (FOMC) with room to ease monetary policy without risking a resurgence of inflation. Analysts have noted that a 25-basis-point reduction would align with market expectations and could help support economic growth without undermining inflation control efforts [2].

The potential impact of a rate cut extends beyond traditional financial markets. A reduction in borrowing costs is generally seen as favorable for riskier assets, including tech stocks and cryptocurrencies. With Bitcoin and Ethereum having experienced a period of stagnation and volatility due to high interest rates, a Fed rate cut could spark renewed investment interest in these assets [1]. Investors are also watching for signals from the FOMC ahead of its upcoming meeting, with each new economic data release influencing market sentiment and positioning [2].

Mortgage shoppers, in particular, stand to benefit from the anticipated rate cut. Lenders often adjust rates in anticipation of Fed decisions, meaning that mortgage rates could ease before the September 17 meeting. This gives potential homebuyers an opportunity to secure lower rates ahead of the official announcement, provided they are prepared with strong credit profiles and preapproval [4].

The anticipated rate cut reflects a broader shift in the Fed’s policy stance, as it seeks to balance the need to control inflation with the goal of supporting economic growth. While uncertainty remains, the consensus is that a modest reduction is likely, signaling a potential turning point in the current rate-hiking cycle [2].

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

[2] https://fortune.com/2025/08/15/bond-market-september-cut-the-fed-not-locked-in/

[3] https://www.forbes.com/sites/simonmoore/2025/08/16/fed-expected-to-cut-interest-rates-though-inflation-may-be-picking-up/

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

[5] https://finance.yahoo.com/news/why-hotter-than-expected-wholesale-prices-make-the-feds-september-rate-cut-decision-harder-155711746.html