September Rate Cut Odds Fall as PCE Inflation Data Comes In Hot

The odds of a September Fed rate cut are dwindling, suggesting that the Federal Reserve is again likely to hold rates steady for the sixth consecutive time following its latest decision. The release of the PCE inflation data today, the Fed’s favorite gauge, has also contributed to the fading optimism among traders, who are now trimming their bets on the FOMC lowering rates in September.

September Fed Rate Cut Odds Drop To 39%

CME FedWatch data shows that the chance of a 25-basis-point (bps) interest rate cut in September has dropped to 39.2% from 63.7% yesterday. Meanwhile, there is now a 60.8% chance that the Fed will hold rates steady again at the September FOMC meeting.

The drop in the odds of a September Fed rate cut comes following the release of the June PCE inflation data. Bureau of Economic Analysis data shows that the PCE figures rose to 2.6% year-on-year (YoY), higher than expectations of 2.5%. Core PCE rose to 2.8%, higher than the expected 2.7%.

Meanwhile, monthly PCE and Core PCE both came in at 0.3%, in line with expectations. The latest inflation data now means that the PCE is up for two consecutive months. Notably, the May inflation data was also revised from 2.3% to 2.4% while the Core PCE rose from 2.7% to 2.8%.

This data release comes just a day after the Fed decided to keep rates steady between 4.25% and 4.5% for the fifth straight FOMC meeting. The Committee had earlier opted against a Fed rate cut at the January, March, May, and June FOMC meetings.

Trump Criticizes Powell Following Fed Decision

In a Truth Social post, U.S. President Donald Trump again criticized Jerome Powell after the Committee opted against a Fed rate cut at the July FOMC meeting. Trump said that he is “TOO LATE, and actually, TOO ANGRY, TOO STUPID, & TOO POLITICAL, to have the job of Fed Chair.”

The president added that Powell is costing the country trillions of dollars in addition to spearheading one of the “most incompetent or corrupt renovations of a building(s) in the history of construction!”

Interestingly, the Trump tariffs are the major reason why a Fed rate cut has yet to happen this year. During his FOMC speech, Powell warned that this is just the beginning of the tariff-induced inflation, suggesting inflation could rise higher in the coming months.

The Fed Chair also mentioned that they haven’t decided whether to cut rates at the September meeting. He added that it is unlikely that they will determine the impact of the tariffs before then.