Sharp rise in forecasts for Fed rate cut in September meeting

Federal Reserve headquarters

Expectations climbed sharply that the Federal Reserve will resume monetary policy easing in its upcoming September meeting, following the release of the monthly jobs report, which signaled a cooling in labor market momentum in the world’s largest economy.

According to the CME FedWatch Tool estimates, futures traders see an 80.9% probability that the Fed will cut its benchmark interest rate by 25 basis points in September, up from 37.7% yesterday and 61.9% a week ago.

Conversely, the probability of the Fed holding rates steady in the 4.25%–4.50% range dropped to just 19%, compared to 62.3% a day earlier.

Investors also see a 57.1% chance of another 25 basis point cut in the October meeting, compared to a 37.3% probability for keeping rates unchanged.

This shift comes after the US economy added only 73,000 jobs in July, well below expectations of a 100,000 gain, while the unemployment rate rose to 4.2% from 4.1%, according to the monthly jobs report.

Additionally, the Department of Labor revised down June's job gains to 14,000 from 147,000 and May’s to 19,000 from 144,000 — a combined downward revision of 258,000 jobs from initial estimates.