The chances of the Federal Reserve cutting interest rates by September 2025 have climbed to roughly 68-70%. This shift reflects growing expectations that the Fed will ease monetary policy after holding rates steady for some time.
What the Market Is Saying
Market tools tracking Fed rate futures show a 71% probability of a rate cut at the September Federal Open Market Committee (FOMC) meeting. The expected cut size is 25 basis points, lowering the current rate range from 4.25%-4.50% to 4.00%-4.25%.
Before the Fed’s June meeting, the odds of a September cut were closer to 58%. After the Fed decided to keep rates unchanged, the market raised the probability to about 64% for September and also increased chances for a possible cut in October.
Some Fed officials, like Governor Christopher Waller, have suggested rate cuts could begin as early as July. Still, the market assigns only about a 14.5% chance to a July cut, making September the more likely timing.
What Fed Officials Are Thinking
The Fed’s recent economic projections show mixed views. While some officials don’t expect any cuts in 2025, the median forecast includes about 50 basis points of cuts this year, likely split into two moves. Market participants, however, lean toward just one cut.
The Fed projects slower economic growth, with GDP growth expected to slow to 1.4% in 2025 from 1.7% earlier. Unemployment is forecasted to rise slightly to 4.5%, while inflation is expected to remain somewhat above target, with core inflation around 3.1%.
These factors are causing the Fed to be cautious but open to easing if the economy weakens further.
Summary Table: Fed Rate Cut Odds and Projections
| Date/Meeting | Probability of Rate Cut | Expected Cut Size | Notes |
| July 2025 | ~14.5% | 25 bps | Low chance, some Fed members open |
| September 2025 | 68-71% | 25 bps | Most likely timing for first cut |
| October 2025 | Increased chance | Possibly 25 bps | Market sees follow-up cut possible |
| Full 2025 | ~50 bps total cuts | 1-2 cuts | Fed median projection |
What This Means for the Economy
The market’s growing confidence in a September rate cut signals a shift in how investors see the economy’s near-term outlook. Slower growth, persistent inflation, and external risks like tariffs and geopolitical tensions are factors pushing the Fed toward easing.
Still, the Fed is balancing these risks carefully. Some officials want to keep rates steady longer to ensure inflation moves closer to the 2% target.
Key Takeaways
- The odds of a Fed rate cut by September 2025 are near 70%.
- A 25 basis points cut is the most likely scenario.
- The Fed remains cautious amid mixed economic signals.
- External risks and inflation trends will shape future decisions.
- Markets are watching closely for data and Fed signals in the months ahead.
FAQs
Q: Why is the Fed expected to cut rates in September?
- Slowing economic growth and ongoing inflation pressures, combined with global uncertainties, are leading the Fed to consider easing to support the economy.
Q: Could the Fed cut rates before September?
- It’s possible but less likely. The chance of a July cut is low, around 14.5%, according to market data.
Q: How many rate cuts are expected in 2025?
- The Fed’s median forecast suggests about 50 basis points of cuts, likely split into one or two moves. Markets currently expect one cut by year-end.
Q: What could change this outlook?
- Stronger inflation, faster economic growth, or easing geopolitical risks could delay or reduce the chance of cuts. Conversely, worsening conditions could speed them up.
The Fed’s path is not set in stone. But for now, September stands out as the most probable time for the first rate cut, marking a potential shift in monetary policy aimed at supporting the economy through uncertain times.
