Market expectations for a Federal Reserve (Fed) interest rate cut as early as this month increased after Chair Jerome Powell, when asked whether July was too soon for such a move, responded that he “can’t say,” noting the decision would hinge on incoming economic data.
Following his remarks at a central banking forum in Sintra, Portugal, futures markets reflected roughly a 25 percent chance of a rate cut at the Fed’s July 29-30 meeting, up from under 20 percent earlier.
Market expects three rate cuts this year
According to the CME FedWatch tool, traders are currently pricing a 21.2 percent chance of a quarter-point interest rate cut this month, up from 18.6 percent earlier. Projections for September reveal that 72.9 percent are pricing a 25-basis-point rate cut, while 19 percent expect the Fed to cut rates by 50 basis points.
Markets are pricing in two additional cuts by the end of the year, one in October and another in December.
U.S. labor market data released on Tuesday showed continued strength, with job openings increasing in May. This has heightened anticipation around Thursday’s payrolls report, as investors look for clues on when the Federal Reserve might lower interest rates.
Fed Chair Jerome Powell, facing pressure from President Trump to cut rates immediately, reiterated the central bank’s cautious approach, stating it would “wait and learn more” about the effects of tariffs on inflation before making a move.
Powell cautious amid tariff uncertainty
In June, the U.S. Federal Reserve decided to hold interest rates steady in the 4.25-4.50 percent range and signaled that rate cuts are still likely to happen in 2025.
However, Federal Reserve Chair Jerome Powell cautioned against putting too much weight on that view, and said he expects “meaningful” inflation ahead as consumers pay more for goods due to the Trump administration’s planned import tariffs. If not for tariffs, Powell said, rate cuts might actually be in order, given that recent inflation readings have been favorably low.
In the new economic projections released alongside the Fed’s statement, policymakers saw growth in 2025 slowing to 1.4 percent, unemployment rising to 4.5 percent, and inflation ending the year at 3 percent, well above the current level. Under the new projections, inflation will remain elevated at 2.4 percent in 2026 before falling to 2.1 percent in 2027 amid largely stable unemployment.
While policymakers still expect to cut interest rates by half a percentage point this year, in line with their March and December projections, they slightly slowed the pace to a single quarter-percentage-point cut in each of 2026 and 2027 in a bid to return inflation to its 2 percent target.
The Fed cut interest rates three times last year, with the last move coming in December. However, policymakers have been reluctant to commit to a timeline for further cuts given the volatility of U.S. trade policy.
