With weak job data, rising political pressures, and hints from the Federal Reserve about changes in its policies, traders are heavily betting on a rate cut in September. The market has already begun to recover, and this could be the start of a strong rebound in the fourth quarter.
The odds of an interest rate cut in September are approaching 90%
According to the CME FedWatch tool, the likelihood of an interest rate cut at the September meeting recently rose to 94%, now sitting at 88%. At the same time, the probability of the Federal Reserve cutting rates three times in 2025 increased to 50%, compared to just 20% last week.
This rapid change indicates a significant policy shift, benefiting markets, as more interest rate cuts mean more liquidity and support for risky assets.
The market is also pricing in three interest rate cuts by the end of the year. Additionally, Goldman Sachs recently raised its 2025 forecasts, expecting three rate cuts of 25 basis points, likely in September, October, and December.
Mary Daly's strategy for lowering interest rates
Mary Daly, President of the Federal Reserve Bank of San Francisco, indicated that a two-rate cut this year still seems appropriate, but she is ready for more cuts if labor market weakness continues. While it is not certain that a rate cut in September will be imminent, Daly believes that each upcoming Federal Reserve meeting represents an opportunity to act, emphasizing the need for flexibility amidst expectations of new economic data from inflation and job reports.
Why is lowering interest rates in September important?
Mary Daly's comments come as President Trump continues to push for an immediate interest rate cut.
A rate cut in September could be crucial in preventing further economic slowdown. It may also provide timely support, allowing for a gradual easing of tight monetary policy without needing to wait too long. High interest rates are believed to harm the U.S. economy, slow job growth, and weigh on markets.
After disappointing job numbers, Trump fired the head of the Bureau of Labor Statistics, Erica McEntarfer, and increased pressure on Federal Reserve Chair Jerome Powell, hinting at significant changes to come. Trump also announced plans to nominate a new Federal Reserve governor who supports rate cuts.
Markets are witnessing a rebound
Wall Street rebounded on Monday after a sharp sell-off last week, fueled by increasing expectations for interest rate cuts. Cryptocurrencies also saw a recovery as traders reacted to weak U.S. job data and rising expectations for rate cuts.
Crypto looks to recover in the fourth quarter
Analyst Alex Kruger believes that the recent drop in cryptocurrency prices is just a minor repetition of the crash that occurred last August. However, he remains optimistic, expecting that rate cuts, tightening regulations on cryptocurrencies, and broader adoption will lead to price increases in the fourth quarter.
It is also expected that the price of Bitcoin will reach $200,000 to $250,000 by mid-2026, especially if the Federal Reserve takes a more accommodative stance and the economy remains strong.
Other analysts compared this situation to 2024, when a change in Federal Reserve policy caused Bitcoin's value to double by the end of the year. If history repeats itself, September and October could be strong months for the cryptocurrency.
The price of Bitcoin recovered to $114,345 on Monday, after dropping below $112,000 over the weekend. Ethereum's price rose by 2.6%, while alternative coins like Cardano and Ripple increased by up to 8%. Bitcoin is currently trading at $114,911.
With growing expectations for interest rate cuts and rising cryptocurrency values, all eyes are now on the next move the Federal Reserve might take.