Traders Bet 71% On Fed Rate Cuts Starting September 2025

On June 27, 2025, traders significantly increased their bets that the U.S. Federal Reserve might reduce interest rates starting in September 2025, potentially leading to three cuts by the end of the year. This development is crucial as reduced interest rates generally lead to easier financial conditions, often triggering investor interest in higher-risk assets like cryptocurrencies.

Traders anticipate the Federal Reserve to commence interest rate cuts starting September, with a 71% probability, significantly higher than the previous week. Officials like Neel Kashkari suggest two rate reductions in 2025. As Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, stated, "expects at least two cuts by the end of 2025—September and likely December."

Investor expectations are primarily set on macroeconomic changes, envisioning positive outcomes for digital currencies. History shows favorable borrowing conditions enhance capital movement into risk assets. Market reactions have been swift, as traders anticipate reduced borrowing costs that drive momentum in various markets. Kashkari's insights contribute to shaping trader sentiment, with widespread speculation affecting the decision-making process.

Historically, rate cuts during past cycles, such as 2020 and 2019, have led to notable rallies in Bitcoin and Ethereum, reflecting increased investor risk appetite. According to the analyst's forecast, rate cuts can bolster investor confidence in cryptocurrencies, potentially driving technological investments in DeFi protocols and related sectors. Historical trends suggest increased interest in digital assets during phases of monetary easing.

The Federal Reserve has signaled the possibility of rate cuts in 2025, a move that has sparked varied reactions among traders. Michelle Bowman and Christopher Waller, key figures within the Fed, have advocated for a rate cut in July 2025, citing contained inflation and a fragile labor market as primary reasons. This stance contrasts with the broader market expectations, which have been influenced by recent economic indicators and inflation trends.

The potential for rate cuts has significant implications for liquidity conditions, which could prompt shifts in both traditional and crypto markets. Traders are closely monitoring the Fed's actions, as any changes in interest rates could influence market volatility and investor sentiment. The Fed's decision to maintain a restrictive stance, delaying potential rate cuts until inflation trends closer to its target, has added to the uncertainty. This cautious approach is aimed at ensuring that inflation remains under control, even as economic growth shows signs of slowing.

Jerome Powell, the Chair of the Federal Reserve, has indicated the possibility of two rate cuts in 2025, despite the economic slowdown and tariff impositions. This announcement has been met with a mix of anticipation and caution from traders, who are trying to gauge the Fed's next moves. The bond market, in particular, has shown unusual behavior in response to the Fed's policy decisions. Traditionally, bond prices rise when the Fed cuts rates and fall when rates rise. However, in 2024, this dynamic broke down, exposing a disconnect between the Fed's actions and market behavior.

The bond market's reaction in early 2024 reflected a growing sense that the Fed was reacting to economic tailwinds in a balanced way while monitoring inflation risk. The market was anticipating weaker growth around 2 percent with lower inflation by year-end, even as the Fed maintained a restrictive stance. By the third quarter of 2024, however, things took an unexpected turn. When the Fed shifted its stance and began aggressively cutting rates, it drove both inflation and the year-end growth rate higher — a sharp contrast to earlier market expectations of weaker growth and lower inflation. The Fed ultimately cut rates three times between Q3 and Q4. Under normal market logic, this should have boosted bond prices, as lower rates typically increase the attractiveness of existing bonds with higher yields. Yet the opposite happened — bonds sold off sharply, with key benchmarks dropping nearly 15 percent from their 2024 highs.

The bond market's seemingly irrational behavior reflects a deeper truth: the Fed's policy missteps and mixed signals undermined investor confidence. When the Fed finally began cutting rates, the market didn’t interpret it as a measured response to stable inflation — but rather as an overdue reaction to worsening economic conditions. The sharp bond sell-off following the rate cuts reflected growing fears that the Fed had mismanaged the timing of its response, raising the risk of long-term inflationary pressures. The bond market was not only questioning the Fed’s timing — it was also reacting to broader structural shifts. Tariff changes and their downstream economic effects introduced new inflationary and growth risks that the Fed appeared to overlook. The bond market, therefore, moved independently of the Fed’s policy decisions, pricing in a more complex and uncertain economic environment.

By December 2024, the Fed appeared to recognize this misalignment. Officials began signaling that further rate cuts were unlikely in the near term, suggesting a shift toward a more patient stance. Interestingly, this change in rhetoric coincided with signs of stabilization in the bond market. After a turbulent year, bonds began to find a floor again. This reversal underscores a critical dynamic: the bond market acts as a forward-looking gauge of economic health and policy credibility. In 2024, the bond market wasn’t responding to the Fed’s actual policy decisions — it was reacting to the perceived strategic competence and timing of those decisions.

The key takeaway for sophisticated investors is that the bond market is no longer responding solely to the Fed’s rate decisions — it’s responding to the Fed’s perceived competence and strategic foresight. The market is signaling that it expects the Fed not only to control inflation but also to anticipate and manage broader economic risks more effectively. The Fed’s ability to regain credibility will determine whether bond market volatility subsides or continues throughout 2025. Investors are no longer reacting to rate cuts alone — they are reacting to the Fed’s ability to anticipate and manage macroeconomic risks. And as 2025 progresses, bond market behavior will likely remain sensitive to the Fed’s ability to strike a balance between inflation control and economic growth. If the Fed can rebuild market confidence through more decisive and well-communicated policy adjustments, bond market volatility may subside. However, until the Fed proves it can anticipate — rather than react to — shifting economic conditions, the bond market is likely to remain volatile. Investors would be wise to watch not only what the Fed does next — but also how confidently and competently it does it.