Rate Cut Momentum Builds: CME FedWatch and Goldman Sachs Expect September Rate Cut

As of July 1, 2025, market expectations indicate that the Federal Reserve is likely to maintain its current policy rate in the near term, though the outlook is shifting towards potential rate cuts in the months ahead.

According to CME FedWatch, the majority still anticipate the Fed will hold the current target rate of 425-450 basis points (bps) at the next policy meeting on July 30, with a 78.8% probability of no change and a 21.2% chance of a 25 bps cut to 400-425 bps. No rate hikes are currently priced in.

However, market expectations shift significantly when looking ahead to the 17 September 2025 meeting. The probability of a 25 bps rate cut to 400-425 bps has increased to 74.9%, up from 55.7% one month ago. The likelihood of a 50 bps cut to 375-400 bps has also risen to 19.7%, compared to 15.8% previously. Meanwhile, the chance of rates remaining at the current level has dropped sharply to 5.4%, down from 27.9% one month ago. The changes indicate growing market confidence in a rate reduction by September.

Goldman Sachs Projects Three Fed Rate Cuts in 2025

On June 30, Goldman Sachs revised its outlook and now expects three 25 bp rate cuts in 2025, scheduled for September, October, and December. Previously, the firm had projected only one rate cut this year. The revision reflects smaller-than-expected tariff effects, stronger disinflationary pressures in the economy, and emerging signs of labor market weakness. This updated forecast is broadly in line with the market’s expectations, as reflected in the CME FedWatch, which shows rising probabilities of rate cuts starting in September.

Looking ahead, Goldman Sachs also forecasts two additional 25 bp cuts in 2026, with a projected terminal rate of 3.00% to 3.25%, compared to its earlier estimate of 3.50% to 3.75%.

Key upcoming macroeconomic data this week that may further shape market expectations include the ADP employment report on July 2, followed by the June unemployment rate, non-farm payrolls, and weekly initial jobless claims on July 3. The U.S. CPI report, scheduled for release on July 15, will also be closely watched.