Traders are now 100% certain that the Fed will cut interest rates in September.

According to CME's FedWatch tool, there is a 93.3% probability that the Federal Reserve will cut interest rates by 25 basis points in September, which means that the federal funds rate will drop from the current 5.25%-5.5% to 5%-5.25%.

The tool also shows that traders expect the Fed to cut interest rates by 50 basis points in September with a probability of 6.7%, which may reflect that some traders believe that the Fed will cut interest rates at its meeting in late July and cut interest rates again in September. Overall, traders believe that the probability of the Fed cutting interest rates in September is 100%.

The catalyst for this market bet was the June CPI data released last week, which showed that the June CPI data fell 0.1% month-on-month. This brought the year-on-year growth rate down to 3%, the lowest level in three years. A month ago, traders also believed that the probability of the Federal Reserve cutting interest rates in September was about 70%.

CME Group’s FedWatch tool calculates probabilities based on trading in the exchange’s federal funds futures contracts, where traders can bet on the level of the federal funds rate in effect over a 30-day period.

Simply put, this reflects where traders are putting their money. Although the actual probability of the Fed keeping interest rates unchanged in September has not yet completely dropped to zero, it at least means that no traders are willing to bet their money on it.

Recent hints from Fed Chairman Jerome Powell have also solidified traders’ confidence that the Fed will make its first rate cut in September. On Monday, Powell said the Fed would not wait until inflation fully falls to its 2% target before cutting rates because there is a lag in tightening policy.

He said the Fed is seeking "greater confidence" that inflation will return to 2%. Powell added, "What would increase that confidence is more good inflation data, and we've seen some of that recently."

The article is forwarded from: Jinshi Data