Emre Yumlu 
The recently released U.S. July jobs report revealed a rise in the unemployment rate from 4.1% to 4.2%, with only 73,000 new jobs added. These figures fell significantly short of expectations and signaled a weakening in the labor market. In response, investors have returned to the possibility of Federal Reserve rate cuts aimed at stimulating the economy. As of now, markets have fully priced in two rate cuts by the end of 2025.
Fed’s Interest Rate Cuts Outlook and Economic Conditions
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The current Fed funds rate stands at 4.33%.
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Investors are expecting two rate cuts by the end of 2025.
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The probability of a 25 basis point cut in September has climbed to 75%.
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Fed official Bowman noted that gradual policy adjustments would continue in order to support the labor market.
At its latest meeting, the Federal Reserve kept its policy rate steady within the 4.25% to 4.50% range. Unlike previous meetings, however, the decision was not unanimous. Two of the 12 FOMC members voted in favor of a 0.25% rate cut. This split decision, along with the tone of the official statement, is being interpreted as a strong signal that a rate cut may come as early as September.
FOMC Projections and Market Expectations
The FOMC’s June projections had already indicated the possibility of two rate cuts before the end of 2025. However, with only three meetings left on the calendar, futures markets have not fully reflected this scenario yet, pricing in only about a 40% chance. On the other hand, some analysts suggest the likelihood is closer to 66%, signaling a solid—but not guaranteed—possibility.
Powell’s Hawkish Messaging
One of the factors reducing expectations of a September rate cut is Fed Chair Jerome Powell’s hawkish tone during his press conference. Powell emphasized that no decision has yet been made for the September meeting. Still, his strong focus on ongoing inflation risks, while downplaying downside risks to growth and the labor market, created a more cautious market sentiment.
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