Fed Rate Cut Odds Soar to 87% Before Key September 2025 FOMC Meeting

FOMC Meeting September 2025: US Inflation Cools, 87% Probability of Fed Rate Cut

The likelihood of a Federal Reserve interest rate cut in September 2025 has surged to nearly 87%, a sharp increase that reflects shifting market sentiment and renewed confidence that inflationary pressures in the United States may finally be cooling. The upcoming Federal Open Market Committee (FOMC) meeting, scheduled for September 16–17, is now at the center of global attention, with investors, analysts, and policymakers closely watching for clues on the Fed’s next move.

Inflation Trends Signal Relief

Recent economic indicators suggest that inflationary pressures are softening, giving the Federal Reserve room to maneuver. The Consumer Price Index (CPI), which hit a post-pandemic peak of 6.8% in November 2021, has been trending downward in recent months. Data released in August indicates stabilization, with annualized inflation hovering closer to the Fed’s long-term target of 2%.

This cooling trend has fueled market speculation that the Fed may pivot from its restrictive monetary policy stance and begin cutting interest rates as early as September. According to the CME FedWatch Tool, futures markets now assign an 87.4% probability of at least a 25 basis point cut at the September meeting, compared to just 62% only a month ago.

Fed Officials Urge Caution

Despite mounting market optimism, Federal Reserve officials remain cautious. At the Jackson Hole Symposium on August 21, Cleveland Fed President Beth Hammack underscored persistent risks to the inflation outlook, citing tariff-related pressures and uneven wage growth. Hammack warned against assuming that a rate cut is imminent, suggesting that policymakers still need more concrete evidence of sustained price stability.

Source: Fed Watch CME Group

“The fundamentals remain fragile,” Hammack stated, “and while we are encouraged by recent progress on inflation, premature easing could reignite pressures we worked so hard to contain.”

Her comments highlight the ongoing tension between financial markets eager for looser monetary policy and policymakers wary of repeating mistakes from earlier inflationary cycles.

Market History Offers a Warning

History suggests that rate cuts, while welcomed by investors in the short term, do not always deliver lasting benefits. A study by the National Bureau of Economic Research (NBER) in 2019 revealed that stock markets often face turbulence following rate reductions, with average declines of nearly 15% within six months of such decisions.

The implication is clear: while a cut could provide short-term liquidity and investor relief, it may also signal deeper concerns about the economic outlook.

Ed Yardeni: "September Cut Still Not Guaranteed"

Prominent market strategist Ed Yardeni, president of Yardeni Research, cautioned against assuming that a rate cut is inevitable. Speaking in the wake of Jerome Powell’s Jackson Hole address, Yardeni stressed that upcoming economic data—including the August employment report and the next round of inflation figures—will be decisive.

“I’m not convinced we’ll see 25 basis points in September,” Yardeni noted. “And the possibility of a 50 basis point cut remains very uncertain. The Fed will want to avoid triggering a market melt-up or fueling speculative excess.”

Yardeni emphasized the risk of overexuberance in equity markets if the Fed moves too quickly. He argued that while easing may provide short-term support, it could also invite volatility and undermine financial stability.

Impact on US Equities

Despite these warnings, Yardeni has not revised his long-term bullish outlook for U.S. equities. He continues to project the S&P 500 reaching 6,600 by the end of 2025 and 7,700 by 2026, citing strong corporate earnings growth as the primary driver.

“The fundamentals remain intact,” Yardeni explained. “Corporate America is generating record profits, and earnings—not valuations—are the real engine behind equity performance. Even if the Fed proceeds cautiously, equities have room to run.”

Source: X

This perspective underscores the complex interplay between monetary policy and market fundamentals. While interest rates are a crucial factor, underlying earnings growth continues to provide a solid foundation for U.S. equities.

Global Ripple Effects

The potential Fed pivot also carries major global implications, particularly for emerging markets. Yardeni drew attention to geopolitical tensions surrounding tariffs and energy trade, particularly involving India and former U.S. President Donald Trump’s policy stances.

India’s reliance on discounted Russian oil has placed it in a precarious position. A decision to cut back on Russian imports could strain the country’s energy security, while maintaining them risks punitive tariffs from Washington. “It’s a coin toss where both sides mean a loss,” Yardeni remarked, describing the situation as a “no-win scenario” for Indian policymakers.

A Fed rate cut could ease some of these pressures by supporting global liquidity flows, but it would not resolve the underlying geopolitical uncertainties.

Investor Sentiment: Optimism with Caution

For global investors, the September FOMC meeting is shaping up to be one of the most consequential in recent years. On one hand, falling inflation and high odds of a rate cut have fueled optimism across equity and bond markets. On the other, experienced strategists caution that markets may be getting ahead of themselves.

Short-term bond yields have already begun to adjust, reflecting expectations of looser monetary policy, while equities continue to rally on hopes of sustained liquidity support. Yet volatility remains a risk, particularly if the Fed surprises markets with a more hawkish tone.

What to Watch Before the September Meeting

Several key economic indicators will shape the Fed’s decision and market reaction:

• August Employment Report: Strong job growth could reinforce inflation concerns, while weaker numbers would bolster the case for easing.

• Updated CPI Data: Confirmation of disinflation trends would give the Fed confidence to act.

• Consumer Sentiment Surveys: Insights into household expectations for inflation and spending patterns.

• Corporate Earnings Guidance: Forward-looking statements from U.S. companies may influence how policymakers view growth prospects.

These data points will be closely scrutinized in the weeks ahead, offering critical clues about the Fed’s policy trajectory.

Conclusion

As the clock ticks down to the September 16–17 FOMC meeting, financial markets are increasingly betting on a rate cut, with futures pricing in an 87% chance of easing. Cooling inflation has created space for the Fed to pivot, but policymakers remain divided, emphasizing the need for caution.

Analysts like Ed Yardeni remind investors that a rate cut is far from guaranteed, with upcoming economic data playing a decisive role. Meanwhile, global markets—from Wall Street to New Delhi—are bracing for the ripple effects of any Fed action.

Writer @Erlin

Erlin is an experienced crypto writer who loves to explore the intersection of blockchain technology and financial markets. She regularly provides insights into the latest trends and innovations in the digital currency space.

 

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