September has mostly been taken out of play for a Federal Reserve interest rate cut as remarks from Chair Jerome Powell point to policymakers still cautious on whether tariffs will spark more inflation. Probability for a September move fell to about 40% on Thursday, the day after the Fed held its benchmark overnight borrowing rate in place for the fifth straight meeting, according to the CME Group’s FedWatch tool. The CME gauge measures 30-day federal funds futures contracts and uses a formula to determine market-implied probability for rate moves. As of Thursday morning, futures pointed to a September funds rate of 4.225%, compared with the current 4.33% level. Markets interpreted tepid comments from Powell and only modest changes in the Federal Open Market Committee’s post-meeting statement as indicating a low chance of a move at the next meeting on Sept. 16-17. “For the time being, we’re well positioned to learn more about the likely course of the economy and the evolving balance of risks before adjusting our policy stance,” the chair said at his post-meeting news conference. “We see our current policy stance as appropriate to guard against inflation risks.” While Powell left room for rate cuts ahead, markets now see the FOMC waiting until at least October before adjusting its key rate. Traders are now expecting just one cut this year. “It almost feels like they’re not going to make a decision until he can say there’s no uncertainty in the economy,” said Jill Gateman, co-head of U.S. commercial banking at TD Bank. “Uncertainty is the new constant, and we have to learn to live with some level of uncertainty in this environment. There’s just too many moving parts to think that we’re going to wait uncertainty away before a decision can be rendered.” Politically unpopular The chair’s comments also weren’t popular in the White House. President Donald Trump again laid into Powell, using his Truth Social platform to lambaste the central bank leader, just a week after a landmark meeting between the two at the Fed’s Washington, D.C., construction site. “Jerome ‘Too Late’ Powell has done it again!!! He is TOO LATE, and actually, TOO ANGRY, TOO STUPID, & TOO POLITICAL, to have the job of Fed Chair,” the president wrote . “He is costing our Country TRILLIONS OF DOLLARS, in addition to one of the most incompetent, or corrupt, renovations of a building(s) in the history of construction! Put another way,’Too Late’ is a TOTAL LOSER, and our Country is paying the price!” Somewhat ironically, Powell on Wednesday said the meeting was pleasant. “We had a nice visit with the president. It was an honor to host him,” he said. Beyond politics, markets largely sold off Wednesday, reversing pre-meeting gains. Markets on the lookout Disappointment over the Fed’s hesitancy to cut didn’t last long, though, as strong tech earnings boosted market sentiment and led to modest gains Thursday . How long that lasts will depend on the data as investors and policymakers alike watch to see what impact Trump’s tariffs will have on inflation and if a slowdown in hiring turns into something more pronounced. A Commerce Department report Thursday showed inflation as measured through the personal consumption expenditures price index, the Fed’s main forecasting gauge, moved up to 2.6% in June, its highest since February. Core inflation, excluding food and energy, was even higher, at 2.8%. “By December, they’ll have to cut, because I think the economy will have weakened by then and they’ll have clarity on the price impact for tariffs,” said John Velis, Americas macro strategist at BNY. “I have a low probability of a September cut. My base case is December, pending what happens over the next few months with the data.” Asked at the news conference what could persuade him to move in September, Powell said, “I just think we’re going to need to see the data, and it could go in many different directions.” The Fed next will gather in August at its annual retreat in Jackson Hole, Wyoming. The FOMC won’t meet formally, but the event historically has featured a major policy speech from the chair. “If we just kind of muddle along with inflation … eventually the Fed will be in the position of removing some of that accommodation, just moving towards a more normal or neutral policy,” said Sue Hill, head of the government liquidity group at Federated Hermes. “I can’t see us staying here forever. Something will happen, I think, to bring them down.”
