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Markets and Fed Officials Signal September Rate Cut as Banks Hold Steady

Traders see a high-probability Fed rate cut in September after weaker July jobs figures, with major banks warning that persistent inflation and stable unemployment make easing unlikely.

Federal Reserve Bank of San Francisco President Mary Daly poses for a photograph at the Kansas City Federal Reserve Bank's annual Economic Policy Symposium in Jackson Hole, Wyoming, U.S. August 25, 2023. REUTERS/Ann Saphir/File Photo
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Federal Reserve board member Jerome Powell speaks after President Donald Trump announced him as his nominee for the next chair of the Federal Reserve in the Rose Garden of the White House in Washington, Thursday, Nov. 2, 2017

Overview

  • CME’s FedWatch Tool shows over a 90% chance of a 25-basis-point cut at the September 16–17 meeting, and futures reflect about 60 basis points of easing by year-end 2025.
  • Fed President John Williams said he will “keep an open mind” on a September rate reduction, and Governor Mary Daly endorsed roughly two cuts next year as appropriate calibration.
  • Economists at BofA Securities and Morgan Stanley maintain forecasts of no rate cuts in 2025, pointing to inflation above the Fed’s 2% goal and a balanced labor market with unemployment steady at 4.2%.
  • July’s payrolls report revealed just 73,000 jobs added and downward revisions of nearly 260,000 positions over May and June, prompting markets to reprice the risk of an economic slowdown.
  • BofA analysts led by Aditya Bhave warn that cuts driven by true labor-market deterioration would be “bad cuts,” cautioning that easing based on short-term weakness alone would be premature.