Analysis of the probability of a Fed rate cut before September 2025 (as of May 30)

There are significant discrepancies in the market's expectations for a Fed rate cut before September, mainly influenced by inflation stickiness, policy uncertainty, and fluctuations in economic data. The key points are as follows:

1. Market expectation probabilities

According to the latest data from the CME FedWatch tool, **the probability of a rate cut in September or earlier is about 56%**, while the probability of maintaining the current rate is 44%. This probability has significantly decreased since the beginning of the year—due to a rebound in inflation in February (with January CPI year-on-year rising to 3% and core CPI reaching 3.3%), the probability of a September rate cut once fell to 55.9%, and the market even worried about no rate cuts for the entire year.

2. Core constraining factors

- Stubborn inflation: Although core PCE inflation has slightly retreated (Citigroup predicts it will be 2.6% in January), it remains well above the Fed's 2% target, and the **new tariff policy** proposed by Trump (such as imposing a 50% tariff on EU goods) may further drive up prices.

- Policy uncertainty: Fed official Kashkari bluntly stated that trade negotiations and adjustments in immigration policy have led to a vague economic outlook, “**anything is possible**,” making it difficult to clarify the policy path before September.

3. Discrepancies in institutional views

- Doveish signals: JPMorgan anticipates that due to rising recession risks (with a 35% probability before the end of the year), a rate cut could be triggered if the data worsens.

- Hawkish tendency: The Fed's dot plot indicates only two rate cuts in 2025 (as predicted last December), and the timing of the first rate cut may be postponed to September or even later.

Conclusion: The probability of a rate cut before September is slightly above 50%, but there are great uncertainties under the inflation and policy game. If inflation significantly cools in June-July or employment data weakens (such as the unemployment rate surpassing 4.5%), it may strengthen rate cut expectations; conversely, the implementation of new tariffs or sustained economic resilience will support maintaining high rates 🔥.