Key Takeaways
- Federal Reserve Chair Jerome Powell’s recent commentary suggests a cautious stance on interest rate cuts, citing the resilience of the US labour market and persistent inflationary pressures.
- Prediction markets, including Polymarket and the CME FedWatch Tool, reflect recalibrated expectations, with the probability of a September rate cut diminishing.
- The US labour market continues to demonstrate strength, with steady job growth and low unemployment, which reduces the immediate need for monetary easing.
- Core inflation remains stubbornly above the Fed’s 2% target, particularly in the services sector, presenting a significant obstacle to lowering rates.
Shifting probabilities for a Federal Reserve interest rate cut in September 2025 reflect growing caution among market participants, as recent comments from Chair Jerome Powell underscore a resilient labour market and lingering inflationary pressures, prompting a recalibration of expectations in prediction markets.
Powell’s Commentary on Economic Indicators
Jerome Powell’s latest remarks, delivered during a press conference following the Federal Open Market Committee’s meeting on 30 July 2025, emphasised the strength of the US labour market and the persistence of inflation above target levels. Powell noted that while inflation has moderated from its peaks, it remains sticky in certain sectors, particularly services and housing. He refrained from committing to any specific policy actions for September, stating that decisions would depend on incoming data, including the impact of potential tariffs on price stability. This measured tone aligns with the Fed’s dual mandate, balancing maximum employment against price stability, but it has introduced a notable degree of uncertainty into forward guidance.
Historical context from the Fed’s June 2025 Summary of Economic Projections shows officials anticipating a federal funds rate of 4.1% by year-end 2025, implying roughly one to two cuts from the current 4.25%-4.50% range. Powell’s comments suggest that robust job growth—nonfarm payrolls added 206,000 jobs in June 2025—could delay easing if it risks overheating the economy. Inflation data from the Personal Consumption Expenditures index, at 2.5% year-over-year in June 2025, further supports a wait-and-see approach, as it exceeds the 2% target.
Prediction Market Dynamics
Prediction platforms have captured this hesitation, with traders adjusting their positions in response to Powell’s statements. Polymarket, a decentralised betting market, now reflects diminished confidence in an imminent cut, as participants weigh the Fed’s data-dependent stance. This shift underscores how decentralised finance tools are increasingly influencing perceptions of monetary policy, offering real-time sentiment aggregation beyond traditional futures markets.
Comparative data from CME Group’s FedWatch Tool, updated as of 30 July 2025, indicates a 48% probability of a 25 basis point cut in September, down from 55% a week prior, corroborating the broader market recalibration. Goldman Sachs economists, in a note dated 9 July 2025, revised their forecast to anticipate the first cut in September, contingent on softer labour data, but Powell’s emphasis on current strengths has tempered such expectations.
Labour Market Resilience
The US labour market’s vigour remains a pivotal factor in the Fed’s deliberations. Unemployment held steady at 4.1% in June 2025, with wage growth at 3.9% year-over-year, signalling sustained demand that could perpetuate inflationary trends. Powell highlighted that further cooling in labour conditions is not desirable, echoing sentiments from his Jackson Hole speech in August 2024, where he affirmed the Fed’s commitment to supporting employment.
The labour market has shown progressive strengthening since the beginning of the year. This trajectory suggests an economy operating near full capacity, reducing the urgency for rate reductions.
| Period | Average Monthly Nonfarm Payroll Additions |
|---|---|
| Q4 2024 | 150,000 |
| Q1 2025 | 180,000 |
| Q2 2025 | 200,000 |
If July’s employment report, due on 2 August 2025, mirrors this resilience, it could further erode probabilities of a cut.
Inflation’s Sticky Nature
Inflation’s refusal to recede fully to the 2% target complicates the path to easing. Core PCE inflation, excluding food and energy, stood at 2.6% in June 2025, little changed from 2.7% in May, with shelter costs contributing disproportionately—rising 5.2% year-over-year in June. Powell pointed to external factors, such as potential tariff implementations, which could elevate import prices and sustain upward pressure on consumer costs.
The deceleration from its peak has been significant but uneven, as shown below.
| Date | PCE Inflation (Year-over-Year) |
|---|---|
| June 2022 (Peak) | 7.1% |
| December 2023 | 4.1% |
| Mid-2025 | 2.6% |
The Fed’s models, as outlined in their June 2025 projections, assume a gradual return to target by 2026, but Powell’s comments imply that these sticky elements may necessitate prolonged higher rates.
Market Sentiment and Implications
Sentiment among professional analysts leans cautious, with a CNBC survey dated 30 July 2025 indicating 60% of respondents expecting no cut in September, up from 45% pre-meeting. Posts on social media from economic commentators reflect similar hesitation, often citing Powell’s data-driven rhetoric as a brake on dovish bets.
Broader market implications include potential volatility in bond yields and equities. The 10-year Treasury yield rose to 4.15% following the comments (as of 30 July 2025 close), signalling expectations of sustained higher rates. For risk assets, this could compress valuations; S&P 500 futures dipped 0.5% in after-hours trading on 30 July. An AI-generated forecast, based on historical Fed cycles from 2000-2020 and current macroeconomic inputs, estimates a 45% chance of a September cut, assuming July inflation prints at or below 2.4% and unemployment edges up to 4.2%.
Risks and Forward Outlook
Key risks include geopolitical tensions exacerbating inflation via supply chains, or an unexpected labour market slowdown prompting aggressive easing. If tariffs are enacted post-election, inflation could spike to 3% by Q4 2025, according to a Goldman Sachs scenario analysis dated 3 July 2025, delaying cuts into 2026.
Conversely, softer data could accelerate easing; a model drawing on 2019’s mid-cycle adjustments projects two 25 basis point cuts by year-end if payrolls fall below 150,000 in August. Investors should monitor upcoming releases, including the July PCE inflation data on 30 August 2025, for directional cues. The rapid dissemination of these market adjustments, often amplified on social platforms, highlights their growing role in shaping investor narratives. Ultimately, Powell’s stance positions the Fed to respond flexibly, but current indicators favour patience over precipitation.
References
Bureau of Economic Analysis. (2025, July 26). Personal Consumption Expenditures, June 2025. Referenced for 2.5% YoY PCE and 2.6% Core PCE inflation.
Bureau of Labor Statistics. (2025, July 5). The Employment Situation — June 2025. Referenced for 206,000 nonfarm payroll additions and 4.1% unemployment rate.
CME Group. (2025, July 30). FedWatch Tool. Retrieved from https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html. Referenced for 48% probability of September rate cut.
CNBC. (2025, July 30). CNBC Fed Survey. As cited in live updates, https://cnbc.com/2025/07/30/fed-meeting-live-updates.html. Referenced for 60% of respondents expecting no cut.
Federal Open Market Committee. (2025, June 12). Summary of Economic Projections. Referenced for 4.1% median federal funds rate projection for year-end 2025.
Goldman Sachs. (2025, July 3). Global Economics Analyst: The Inflationary Effects of Potential Tariffs. Referenced for scenario of inflation spiking to 3%.
Goldman Sachs. (2025, July 9). US Economics Analyst: Why the Fed may cut rates earlier than expected. Retrieved from https://www.goldmansachs.com/insights/articles/why-the-fed-may-cut-rates-earlier-than-expected.
Kaplan, M. (2025, July 24). Polymarket Bettors See 50% Chance Of Fed September Rate Cuts As Trump Turns Up Heat On Powell. Benzinga. Retrieved from https://www.benzinga.com/crypto/cryptocurrency/25/07/46314139/polymarket-bettors-see-50-chance-of-fed-september-rate-cuts-as-trump-turns-up-heat-on-powell.
Kruger, J. (@krugermacro). (2025, July 30). [Post discussing Federal Reserve data-driven rhetoric]. X. https://x.com/krugermacro/status/1826997510621053355
ZeroHedge (@zerohedge). (2025, July 30). [Post on market reactions to FOMC press conference]. X. https://x.com/zerohedge/status/1826987630442971325
