Markets 95 Percent Confident the Fed Will Cut Interest Rates, But Economists Remain Divided
Economic pressures stemming from the US government shutdown, slowing inflation, and growth concerns are now fueling strong expectations that the Federal Reserve (the Fed) will cut interest rates in the near future.
According to the latest data from the CME FedWatch Tool, the market's probability of a 25 basis point (bps) rate cut has reached 95 percent, making it the highest probability so far this year. This figure reflects investor confidence that the Fed has little room to maintain high interest rates amid growing fiscal uncertainty stemming from the shutdown, which has lasted more than two weeks.
"The market has 'locked in' expectations of a cut of at least 25 bps at the upcoming meeting. A protracted shutdown serves as an additional catalyst, reinforcing the dovish view on monetary policy," said interest rate analysts at the CME Group.
Economist Survey Shows a More Cautious Outlook
While the market indicates near-full confidence, economists are actually taking a more conservative stance.
In a Reuters survey of 110 economists last August, approximately 61 percent of respondents expected the Fed to cut interest rates by 25 basis points at its September 2025 meeting, while the remainder expected the Fed to hold rates longer until inflation stabilized below its 2 percent target.
Major financial institutions like Morgan Stanley also warned that the market may be overly optimistic. They assessed the chance of a cut at only about 50 percent, given the still-solid economic data in the labor and household consumption sectors.
"The market is reacting to political factors and short-term risks. However, fundamentally, the US economy has not shown signs of a recession deep enough to warrant an aggressive rate cut," Morgan Stanley analysts said in their latest research report.
Major Banks Also Revise Projections
Several major financial institutions have begun adjusting their forecasts as market pressure mounts:
JPMorgan projects a 95 percent chance of a rate cut soon, with an 87.5 percent chance of a 25 basis point cut.
Goldman Sachs believes an "earlier-than-expected" cut scenario could occur if October's inflation data weakens more quickly than expected.
Bank of America estimates that total interest rate cuts throughout 2026 could reach 75–100 bps, especially if economic growth begins to slow below 1.5 percent.
Government Shutdown Accelerates Pressure on Fed
The US government shutdown, which has entered its third week, has further complicated the situation. Much economic data—including employment reports and government spending—has been delayed due to the temporary suspension of administrative activities.
This situation has deprived the Fed of several key indicators for assessing current economic conditions, increasing uncertainty ahead of its next policy meeting.
"The Fed now faces a dilemma: should it wait for delayed economic data, or act quickly to calm markets," wrote Business Insider in its analysis.
Several Fed officials previously emphasized that monetary policy decisions would remain data-dependent. However, with the disruption caused by the shutdown and rising financial risks, public pressure for the Fed to cut interest rates soon is growing stronger.
Conclusion: Dovish Sentiment Strengthens
With the market probability reaching nearly 95 percent, expectations for monetary easing are strengthening.
However, economists and major research institutions remain divided between cautious measures and the need for a swift response to the pressing political and fiscal situation.
If the Fed does indeed cut interest rates at its upcoming meeting, it would be the first rate cut since early 2024, and a strong signal that the era of tight monetary policy is beginning to ease.
Source: Newsmaker.id
