- The CME is confident that the Fed will finally pull the trigger on interest rate cuts in the next FOMC meeting.
- This is despite inflation rising to 2.9% and unemployment climbing to 4.3% in August.
Market watchers fear that the new US inflation and jobs data will put a dent in the public’s expectation of a federal interest rate cut. Recession fears are again on the table, but several groups are bullish that the US Federal Reserve will still cave in to President Donald Trump’s constant call for lower rates.
Latest US Inflation and Jobs Data
The inflation numbers are in, and don’t look good for the month of August. According to the latest report on the Consumer Price Index (CPI), a measure of the average rise in consumer goods and services, inflation rose from last month’s 2.7% to 2.9%. This represented the fastest pace of increase in this metric since the start of 2025.
The soaring prices of cars, household furnishings, and common grocery goods significantly contributed to the inflation figures. Now, analysts and policymakers are carefully considering whether the trend is the result of what Federal Reserve Chair Jerome Powell has warned people all along: the effect of Trump’s aggressive import tariffs.
The uptick in US inflation came hot on the heels of the equally unfavorable jobs data earlier. Last week, the Bureau of Labor Statistics (BLS) revealed that unemployment rose 4.3% in August, with only 22,000 jobs added. Again, the sectors that Trump wanted to boost through his tariffs took the brunt of the job losses, namely the oil, gas, coal, and manufacturing industries.
All these have caused analysts to warn about a potential recession or economic slowdown. Many also see them as possible reasons why the Fed may hold back from an interest rate cut in the next Federal Open Market Committee (FOMC) meeting on September 16 to 17.
CME Predicts High Chance of Interest Rate Cuts
The CME FedWatch tool seems unfazed by the recent inflation and jobs numbers. The platform predicted an 88.8% chance of a quarter-point slash and 11.2% odds favoring a half-point cut by next week.
Interestingly, the CME benchmarked the rates at 3.5% to 3.75% if further cuts will occur in the final two FOMC meetings in October and December. Usually, these positive outcomes favor the stock and crypto markets.
While the CME FedWatch Tool indicates a near certainty of a rate cut, the split opinions among analysts and the conflicting economic data points make the outcome far from guaranteed. The decision will not only set the tone for monetary policy and the next big moves in cryptocurrencies for the remainder of 2025 but will also be seen as a test of the Fed’s independence in the face of political pressure from the president.
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