Markets are on edge as the Federal Reserve’s next policy decision approaches. With inflation data still running above the central bank’s target and signs of a slowing economy emerging, traders are split on how aggressively the Fed will act. The September meeting is shaping up to be one of the most closely watched of the year, with implications across equities, bonds, currencies, and commodities.
Market Expectations
CME FedWatch data shows traders are pricing in high odds of a rate cut at the September meeting. Futures contracts tied to the Fed funds rate imply a roughly 70% chance of a 25-basis-point cut, though a minority of investors still see the possibility of a hold. The decision will come down to how the Fed balances sticky inflation with softening labor market indicators.
Key factors shaping expectations:
- Inflation: Core CPI and PCE remain above the Fed’s 2% target, though they have eased slightly from last year’s highs.
- Labor market: Job growth is moderating, with unemployment edging up, suggesting the economy is cooling.
- Growth outlook: Recent GDP data showed slower momentum, fueling concerns about a potential recession.
Market Reactions So Far
Bond yields have been volatile, with the 10-year Treasury hovering around key levels as investors position for a policy shift. Equities have traded cautiously, with defensive sectors seeing inflows ahead of the decision. The U.S. dollar has remained firm, but a rate cut could spark renewed selling pressure. Meanwhile, gold continues to benefit as a hedge, holding near record highs.
Why This Decision Matters
The Fed’s September move will set the tone for markets into year-end. A cut could ease financial conditions, support equities, and weaken the dollar, while boosting commodities. On the other hand, holding rates steady may test investor confidence and raise fears the Fed is falling behind on growth risks.
Highlights:
- Traders largely expect a 25-basis-point cut
- Inflation remains above target but is easing
- Labor market is cooling, raising pressure on policymakers
- Decision could drive major moves in bonds, the dollar, and gold
Outlook
All eyes are on Chair Jerome Powell’s post-meeting press conference for forward guidance. Markets will look for clues on whether September marks the start of a cutting cycle or just a one-off adjustment. Either way, the Fed’s move is set to be a pivotal moment for global markets heading into the final quarter of 2025.
Marc has been involved in the Stock Market Media Industry for the last +5 years. After obtaining a college degree in engineering in France, he moved to Canada, where he created Money,eh?, a personal finance website.
