Markets Expect Almost 100% Chance of September Fed Cut

The likelihood of a Federal Reserve interest rate cut in September is now nearly 100% after data showed US inflation rose at a moderate pace in July and Treasury Secretary Scott Bessent indicated that a half-point reduction could be possible amid weak employment numbers.

Traders in futures tied to the federal funds rate placed the probability of a quarter-point cut at 99.9% for the Sept. 16-17 meeting, according to CME Group’s FedWatch tool. The expectation follows July’s Consumer Price Index data and Bessent’s comments noting that recent labor market revisions showed slower job growth than previously estimated.

“If we had seen those numbers in May or June, I suspect we could have had rate cuts then. That tells me there is a very good chance of a 50 basis-point rate cut in September,” Bessent said in an interview with Bloomberg. He added that current rates are “too constrictive” and should eventually be lowered by 150 to 175 basis points.

The discussion coincides with the administration considering candidates to replace Federal Reserve Chair Jerome Powell, whose term ends in May. The shortlist includes 11 names, such as Fed Vice Chairs Philip Jefferson and Michelle Bowman, Governor Christopher Waller, Dallas Fed President Lorie Logan, and former Trump adviser Kevin Hassett, according to a White House official.

Stephen Miran, current chair of the Council of Economic Advisers and nominee for an open Fed board seat, is not expected to remain beyond January even if confirmed, Bessent noted.

While Bessent’s proposed cuts fall short of President Donald Trump’s call for rates near 1%, they would reduce the federal funds rate from the current 4.25% to 4.5% range to around 3%, which policymakers consider neutral.

Fed officials have not declared victory on inflation, which remains above the 2% target and could temporarily rise due to tariffs. However, concerns over weakening labor conditions have grown after the Bureau of Labor Statistics revised employment figures for May through July downward.

Some policymakers, including Bowman, have argued that proactive approach cuts could prevent further labor market deterioration and reduce the risk of larger policy moves later.