83% Chance Fed Cuts Rates in September—A Move That Would Shatter Precedent

The Federal Reserve stares down history—with an 83% probability of slashing interest rates this September. Markets brace for impact as policymakers flirt with unprecedented monetary maneuver.

Breaking the Pattern

Central bankers typically pivot with caution—but not this time. A September cut defies decades of playbook orthodoxy, sending shockwaves through traditional finance circles. Wall Street's crystal ball flashes red—and crypto's already pricing it in.

Digital Gold Rush

Rate cuts torch fiat's value—and smart money's already rotating into hard-cap assets. Bitcoin doesn't wait for Fed press conferences—it front-runs desperation moves while bankers still draft their statements. Traditional portfolios bleed—blockchain wallets pump.

Legacy Finance's Reckoning

Another emergency lever pulled—another admission that traditional systems sputter. Gold glitters—but code executes faster. The old guard debates percentages—degen traders already booked 3x longs. When the Fed panics—crypto thrives.

They'll call it 'data-dependent'—you'll call it capitulation. The money printer's warming up—and this time, it's fueling digital asset rockets, not boomer retirement funds.

In the past, the Fed has rarely cut in this situation

The July Consumer Price Index (CPI) report released on Aug. 12 gave investors all the confidence they needed that the Fed will cut rates in September. The CPI tracks the monthly and yearly price changes of a basket of consumer goods and is viewed as a key data point that the market uses to gauge the level of inflation.

Image source: Getty Images.

In July, the CPI rose 0.2% from the prior month on a seasonally adjusted basis and was up 2.7% year over year. The annual number came in 0.1% below what consensus estimates called for. Meanwhile, Core inflation, which strips out more volatile food and gas prices, rose 0.3% from the prior month and 3.1% higher year over year, with the annual number slightly above consensus.

The market ripped higher on the news and U.S. Treasury Secretary Scott Bessent called for the Fed to cut rates by a half point. Looking at the specific report, many items are still experiencing monthly increases, including food away from home (0.3%), used cars (0.5%), shelter (0.2%), transportation services (0.8%), and medical care services (0.8%). But with the headline CPI number coming in around consensus or even slightly better, the market now thinks the Fed has the evidence it needs to cut rates.

Powell has been in pause mode because he and the majority of other members of the Fed's Board of Governors are unclear what impact tariffs will have on inflation. While there certainly has been some impact thus far, it has not been as immediate or severe as many had expected. The Fed wants to avoid any kind of stagflationary environment at all costs, in which both unemployment and inflation rises. So with some weaker labor data in recent months, if inflation data comes in tamer than expected, the Fed is in a better position to cut.

But if the Fed does go ahead and lower interest rates in September, it would likely be a near-unprecedented move, says Jim Bianco, who runs his own research firm, Bianco Research:

YoY CORE CPI, 3.1%
Up 0.3% in the last 3-months

In the last 40 YEARS, only once has the Fed CUT rates when core was above 3% AND the 3m chg was >0.3%, Oct 1990 to Mar 1991.

Agree with @EpsilonTheory, the 2% infaltion target is dead.

We are accepting a higher inflation world. pic.twitter.com/wJrdM4UyHi

As stated by Bianco, the Fed puts more weight onto core inflation because energy and food prices are more volatile and can be influenced by other factors, meaning they aren't always the best indicators of inflation. The Fed's preferred inflation target is 2%, although many like Bianco have argued that the Fed has more or less abandoned this metric and may be more focused on the labor market.

Unchartered territory

While estimates of the Fed's likelihood to cut rates change constantly, seeing such a high chance for a cut in September is certainly a hard number to ignore. There are only a few key data points still to be reported before the Fed's September meeting, so new data would need to clearly show higher inflation to dissuade the Fed from cutting. They would also need to be of more concern to Fed board voters than the weakening labor market data.

That said, Bianco's messaging makes sense. It's possible the Fed views inflation as artificially high, given the amount of support put into the economy during the brunt of the pandemic, and that inflation will fall closer to the Fed's 2% target over time. The jobs data have shown weakening in the labor market in recent months, with the economy only adding about 73,000 jobs in July and revising prior-month numbers significantly lower. Recent unemployment claims growth is also of concern.

The U.S. economy is powered by consumer spending, so if unemployment begins to rise, that could blunt the key force driving economic growth. It's also not quite clear how the Trump administration's immigration policies will impact the labor market. For instance, fewer immigrants in the country can skew data on job growth and unemployment rates, creating a false narrative about how overall employment is actually faring.

The fact that the Fed is strongly predicted to cut rates despite the data Bianco cited shows the economy is in uncharted waters. Investors should understand that this means things may happen differently than in past cycles. That could mean higher highs or perhaps a potential pullback on the horizon. We don't know, but it's something for all investors to be aware of so they can make calmer, less rash decisions.