Market Expectations Today's Fed News

Markets are widely anticipating a Fed rate cut in September 2025, with expectations fueled by signs of moderating inflation and a potentially weakening labor market. However, the exact timing and magnitude of future cuts will depend on incoming economic data and the Fed's ongoing assessment of the risks to its dual mandate of price stability and maximum employment. Investors will be closely scrutinizing the Fed's statement, economic projections (including the dot plot), and Chair Powell's press conference for clues on the future path of monetary policy. 

Current market expectations, based on the CME Group's FedWatch tool, indicate a high probability of the Federal Reserve (Fed) implementing an interest rate cut at its upcoming September 17th meeting. The federal funds rate has been held steady at 4.25% to 4.50% throughout 2025, following three cuts in late 2024. 

Here's a closer look at market expectations:

1. Rate cut expectations

High probability of a September cut: The CME Group's FedWatch tool suggests a high probability (around 98%) of a 25-basis-point rate cut at the September meeting. However, according to Yahoo Finance, this may not translate to significantly lower mortgage rates, as those tend to be influenced by market expectations leading up to the meeting.

Morgan Stanley's view: Morgan Stanley's interest-rate strategy team believes the Fed might cut rates even more sharply than the market currently assumes, predicting a 25-basis-point cut in September followed by further decrements at subsequent meetings through December 2026.

Potential for multiple cuts: Based on probabilities implied by derivatives prices, investors still anticipate 1 to 2 rate cuts before the end of 2025. 

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