Since the U.S. Producer Price Index (PPI) report dropped, the odds of the Federal Reserve trimming the federal funds rate have taken a slight turn.
Fed Rate-Cut Faith Wavers as Inflation Jitters Creep In
This article was published more than a year ago. Some information may no longer be current.
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September Fed Cut No Longer a Lock After PPI Shock
The hotter-than-expected inflation data in the July PPI has thrown a hint of uncertainty into the equation. While traders still heavily favor a rate cut at the Sept. 17, 2025, Federal Reserve meeting, CME Fedwatch data shows it’s no longer the near-certainty it once seemed.
Fedwatch data shows a hefty 92.8% probability that the target range will drop to 4.00%–4.25%, down from the current 4.25%–4.50%. Before the PPI release, the probability was sitting above the 96% mark. Roughly 7.2% of traders expect the Fed to keep rates unchanged. In short, most of the market is betting on a cut — but a hint of doubt has now slipped into the conversation.
Kalshi traders are nearly unanimous that the Fed funds rate will remain above 3% in September, keeping odds at 97% or higher for every level up to 3.75%. Confidence slips only slightly at 4%, where traders still assign a 96% chance. Once past 4.25%, the odds tumble to 21%, signaling most anticipate a cut by that point. That, too, shifted a bit after the inflation report made the rounds.
In another market, Kalshi traders are heavily favoring a modest cut at the September Fed meeting, with 76% betting on a 25-basis-point (bps) trim. The odds of the Fed holding steady are at 21%, up slightly in recent sessions, while just 4% see a larger cut of more than 25 bps as likely. In short, the market’s money is on a small but meaningful reduction, with any bigger move viewed as a long shot.
Polymarket traders are also firmly behind a quarter-point cut in September, assigning it a 72% chance despite a minor dip in confidence. A larger 50-basis-point cut sits at just 5%, while the odds of no change have risen to 23%. Virtually no one is pricing in a hike, with a 25+ basis-point increase sitting at just 1%. The bottom line: markets overwhelmingly expect a trim, but they’re not betting on anything beyond 25 bps.
Still, the odds on both Kalshi and Polymarket were once considerably higher. The shifting probabilities reflect a market grappling with fresh inflation signals and recalibrating expectations in real time. While confidence in a modest September cut remains high, the cracks in the consensus hint at a more cautious outlook. Traders may be bracing for surprises, knowing that one unexpected data point could tilt the entire rate-cut narrative overnight.
