Odds Favor September Rate Cut by the Federal Reserve
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Even though a lot can happen in 37 days, investors appear confident that the Federal Reserve will implement a benchmark interest rate cut at its next policymaking meeting in September.
CME Group’s FedWatch tool, which leverages investor moves on the market to put odds on whether the Federal Reserve will stand pat or alter interest rates. As of August 10, FedWatch had the chances of an interest rate cut to a target range of 4-4.25% at 88.4%. The benchmark currently stands at 4.25-4.5%, where it’s been since December 2024.
Now, the FedWatch tool isn’t gospel. Its disclaimer says as much, stressing that it “does not constitute investment advice and is not a personal recommendation from CME Group.” Still, it gives an indication of what folks are betting on in terms of potential changes to the benchmark interest rate.
Several factors are likely contributing to the bullishness on a rate cut, not least of which was the less-than-stellar jobs report at the start of August. Add in the fact that two members of the Federal Reserve’s policymaking committee dissented from last month’s majority decision to keep rates the same, and maybe nearly 9-to-1 odds aren’t that off the mark.
Another element at play is that President Donald Trump has recently nominated his economic advisor Stephen Miran to serve out the remaining term of outgoing Federal Reserve board member Adriana Kugler, who submitted her resignation on August 1.
Trump has been waging an open pressure campaign against Federal Reserve chairman Jerome Powell over his reluctance to cut interest rates. Miran would need Senate confirmation, though, making it unclear whether he will have a chance to weigh in at the next policymaking meeting scheduled for September 16-17.
Like the president, prospective homebuyers have been hoping for rate cuts, as mortgage rates tend to indirectly track the Federal Reserve’s benchmark. Speaking of mortgages, Freddie Mac has been clocking a downward trajectory since July 17.
The 30-year currently stands at 6.63%, and the 15-year is at 5.75%, the lowest they’ve been since April.
“Even with rates drifting lower, they remain above pre-pandemic levels, continuing to weigh heavily on affordability,” said Anthony Smith, Realtor.com’s senior economist. “For many would-be buyers, even a modest dip in borrowing costs can improve monthly payment calculations and expand their range of options.”
Lawrence Yun, chief economist for the National Association of Realtors, previously estimated that several million more households would be able to afford a median-priced home if the 30-year got down to 6%.
