Fed Interest Rate Decision: Why September Cut Is No Longer Certain

The U.S. Federal Reserve (Fed) is once again at the center of global financial attention. Investors had been confident that the central bank would start lowering interest rates in September, but growing caution from Fed officials has shifted market sentiment. As a result, the probability of a rate cut in September is falling, while the odds of a rate hold are climbing.

Market Bets on a Pause Rise Sharply

According to the CME FedWatch Tool on August 22, futures markets now see a 26.7% chance of the Fed keeping rates unchanged at the September FOMC meeting. This is up from just 7.8% a week earlier. While the majority still expect a 0.25% cut, the balance is changing quickly.

This shift comes as policymakers prepare for the annual Jackson Hole Symposium in Wyoming, where Fed Chair Jerome Powell will deliver a widely anticipated keynote speech. Markets are treating it as a critical signal of the Fed’s direction going into the September meeting.

Inflation Risks vs. Labor Market Weakness

The Fed is caught between two conflicting signals: persistent inflationary pressure and signs of a cooling labor market.

• Inflation concerns: Beth Hammack, president of the Cleveland Fed, stressed in an interview that inflation remains too high, with price growth continuing for more than a year. She argued there is little justification to cut rates at this stage, especially as tariff-driven price hikes may fully show up in 2026.
• Employment slowdown: In contrast, Susan Collins of the Boston Fed suggested that if upcoming data show rising risks of job market deterioration, an earlier rate cut could be warranted.

Data from the U.S. Labor Department already show weakness: initial jobless claims rose to 235,000 last week, the biggest increase in three months. Continuing claims also hit 1.97 million, the highest since late 2021.

Fed Officials Call for Patience

Kansas City Fed President Jeffrey Schmid, who holds a voting seat this year, emphasized that the central bank needs “decisive data” before changing course. His cautious tone reflects a broader view within the Fed: better to wait for clarity than to risk cutting too soon.

Former Indian central bank governor Raghuram Rajan echoed that sentiment in a New York Times interview, noting that cutting rates only to reverse later would damage the Fed’s credibility. “The central bank can wait, but it cannot change direction overnight,” he warned.

Political Pressure From Trump Administration

Adding another layer of complexity is the political backdrop. President Donald Trump has been publicly demanding rate cuts, even pressuring the Fed board to replace members with more “Trump-friendly” voices. Treasury Secretary Scott Bessent has gone further, calling for a “big cut” of 50 basis points in one move.

This political interference contrasts with Powell’s cautious approach and raises questions about the Fed’s independence. Investors are waiting to see how Powell addresses this tension in his Jackson Hole speech.

Lessons From the Pandemic Era

The debate recalls the 2021–2022 period, when the Fed cut rates aggressively during the pandemic only to see inflation surge later. That episode remains a warning for policymakers not to move prematurely. Many within the Fed want to avoid repeating what they see as a costly mistake.

What to Expect From Powell at Jackson Hole

Markets are now laser-focused on Powell’s upcoming remarks at Jackson Hole. It will likely be his final keynote address as Fed Chair, marking the end of an era that began in 2018. His tone will set this page expectations not just for September, but also for how quickly the Fed may move toward an easing cycle.

If Powell emphasizes inflation risks, markets may push back further on rate-cut bets. If he highlights labor market weakness, traders may regain confidence in a September cut. Either way, volatility is expected.