Fed Rate Cut Appears All But Certain as Market Prices in 97% Chance
Slowing inflation and a softening labor market fuel investor bets on another quarter-point reduction at the upcoming October meeting.
Investor conviction that the Federal Reserve will cut interest rates for the second consecutive meeting has solidified, with futures markets now pricing in a 97% probability of another quarter-percentage-point reduction at the central bank’s late October gathering.
This overwhelming expectation, tracked by the CME FedWatch Tool, follows the Fed's initial pivot in September when it lowered its target rate for the first time since 2024. The sentiment is being driven by a string of economic data suggesting that the U.S. economy is cooling, giving the central bank room to ease monetary policy to support growth.
The case for a cut was bolstered by the latest inflation figures. The Consumer Price Index (CPI) for September showed a 3.0% year-over-year increase, a figure that came in just below analyst forecasts. According to the Bureau of Labor Statistics report, core inflation, which strips out volatile food and energy prices, also showed signs of moderation, rising just 0.2% month-over-month.
At the same time, the labor market, a key focus for the Fed, is showing signs of losing momentum. The most recent employment data revealed that nonfarm payrolls grew by a meager 22,000 in August, and the unemployment rate has ticked up to 4.3%, its highest level in three years. This trend has shifted the Federal Reserve's focus toward its dual mandate of maintaining price stability while ensuring maximum employment.
Internal deliberations at the central bank appear to align with market expectations. Minutes from the Federal Open Market Committee's September 17 meeting indicated that a majority of members anticipated further policy easing before the end of the year, acknowledging the downside risks to the employment outlook.
The shifting landscape has been noted across financial markets, with a Wall Street Journal report highlighting the growing consensus among bond and currency traders that a rate cut is imminent. This anticipated move toward looser financial conditions is broadly supportive for equities, as lower borrowing costs can stimulate corporate investment and boost valuations.
All eyes are now on the upcoming FOMC meeting scheduled for October 28-29. While a 25 basis point cut to a target range of 3.75%-4.00% is largely considered a foregone conclusion, investors will be scrutinizing Chairman Jerome Powell’s accompanying statement and press conference for guidance on the central bank's future trajectory and whether further cuts can be expected heading into 2026.