As anticipation builds ahead of the Federal Reserve’s upcoming September Federal Open Market Committee meeting, expectations are mounting that policymakers will move to cut interest rates, though not without ongoing debate.
A slightly softer Consumer Price Index reading, released Tuesday, showed inflation rising 2.7% year-over-year—just below the Dow Jones median estimate of 2.8%. That moderation has strengthened forecasts for a rate cut in September 2025. According to CME Group’s FedWatch tool, as of August 14, the market placed a 93.31% probability on a 25-basis-point reduction in the benchmark rate, with only 6.79% expecting no change. The likelihood of a larger, 50-basis-point cut, which stood at 5.72% a day earlier, disappeared from futures pricing by Thursday.
Pressure on the Fed from Washington has remained steady. President Trump and his administration have called on Federal Reserve Chair Jerome Powell to move aggressively. Treasury Secretary Scott Bessent told Fox Business that the new CPI figure was “fantastic” and justified a half-point cut, although he noted the inflation data was driven by what he called “very odd” services sectors. The numbers also revealed a 2.9% increase in food prices and a 5.5% rise in electricity. Service inflation showed increases of 3.7% for shelter, 4.3% for medical care and 3.5% for transportation.
Some market observers have gone further. Tim Graf of State Street Global told Reuters that, given signs of a cooling labor market, a rate cut in September is "a given," and that traders may begin to price in the chance of a larger, 50-basis-point reduction.
There are also emerging divisions within the Federal Reserve’s own ranks. Two members dissented in July's votes by advocating for a rate cut, rather than maintaining current levels, a move highlighted by Fortune as a potential sign that the committee could become more dovish. Whether such dissent will be enough to sway the majority remains in question.
Deutsche Bank’s Jim Reid summarized the market mood in a client note cited by Fortune: “The main takeaway was for the Federal Reserve, as investors dialed up the likelihood of a 25 bps rate cut in September. It was the same story for the coming months as well, with 105 bps of cuts priced in by the June 2026 meeting at the close, up +4.4 bps on the previous day.”
Still, not all signals point the same way. Thursday’s Producer Price Index report showed wholesale prices posting their largest jump in three years, according to MarketWatch. Michael Hanson, an economist at JPMorgan, told Reuters there is “clear evidence that prices of a number of durable goods are being passed through to consumers.” This trend suggests that further cost increases may be ahead, potentially complicating the Fed’s calculus on monetary easing. Such inflationary pressures could prompt the central bank to move more cautiously before committing to rate cuts.
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