Federal Reserve September Rate Cut Expectations Surge to Near 92% Following CPI Release

Market participants are substantially raising their outlook for an imminent point cutting cycle. Following the latest Consumer Price Index data release on August 12, CME’s Fed Watch tool shows the likelihood of a 25 basis point reduction in September has climbed to 91.8%, according to BlockBeats. This represents a notable shift from the pre-CPI assessment, which stood at 82.5%, reflecting growing confidence among traders that monetary easing is on the horizon.

The odds of maintaining the current rate level through September now sit at just 8.2%, signaling minimal expectation for the Federal Reserve to hold steady at their September 17 FOMC meeting. Beyond that immediate decision point, market pricing reveals a fragmented outlook for the October 29 session: there is a 2.2% probability of unchanged rates persisting through October, while cumulative reductions are viewed as far more likely.

Specifically, the market is pricing in a 31% probability of a single point cutting move totaling 25 basis points across the two meetings, while the more aggressive scenario of cumulative reductions reaching 50 basis points carries a 66.7% likelihood. This distribution suggests traders are increasingly confident the Federal Reserve will need to cut rates on multiple occasions between September and year-end.

The intensity of these expectations underscores a significant repricing in Fed policy expectations. Traders are now heavily favoring not just a September point cutting move, but a continuation of rate reductions through December, indicating they believe inflationary pressures have cooled sufficiently to warrant the Fed’s pivot toward monetary accommodation.