A September rate reduction is now viewed as a home run, with some hoping for a bigger cut than 25 basis points
Markets now view a September interest rate cut by the Federal Reserve as a near certainty after Tuesday’s consumer price index (CPI) report showed inflation still isn’t spiking.
The CME Group’s FedWatch, a gauge of market sentiment toward future central bank decisions, gave a 95.9% chance Wednesday that the Fed would ease rates by 25 basis points on September 17, with a small but growing prospect of an oversized half-point reduction.
Treasury secretary Scott Bessent, who said yesterday that rates should be far lower, reiterated his call for a jumbo cut next month.
“I think we could go into a series of rate cuts here, starting with a 50-basis-point rate cut in September,” Bessent said during a Bloomberg Surveillance TV interview Wednesday.
Inflation ticked up by 0.2% in July, government data showed yesterday, a small increase that markets clearly believe gives the Fed room to cut rates for the first time this year in its next decision.
The central bank cited “elevated” economic uncertainty and inflationary risks as key factors in its decision to hold rates steady last month, although two voters – Michelle Bowman and Christopher Waller – voted for a cut in a rare show of Fed disunity.
However, traders see a cut next month as overwhelmingly likely because inflation is remaining in check even despite the Trump administration’s continuing global trade war and tariff policies.
Ten-year Treasury yields, which strongly influence 30-year fixed mortgage rates in the US, ticked lower Wednesday as rate cut expectations grew.
But Federal Reserve Bank of Atlanta president Raphael Bostic struck a cautious tone on the rate forecast, saying he still expects just one cut in 2025 even though markets also view an October reduction as likely.
Still, he said his outlook could change if the job market – which weakened in July – slips again. “For the rest of this year, I still have one cut on my outlook,” Bostic said during an event in Alabama.
“That also is predicated on the notion that labor markets stay solid. If they weaken considerably, that balance of risks starts to look differently and the appropriate path will look different as well.”
After lowering rates by a full basis point through three consecutive cuts between September and December last year, the Fed has held its funds rate steady in its last five announcements.
Stay updated with the freshest mortgage news. Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
