Certainly the markets will be cut in September, but the path from there is more blurry

Traders work on the floor of the New York Stock Exchange on August 22, 2025, in New York City.

Spencer Platt Gety pictures

On Friday, the prosperous rally turned to verify the reality on Monday, as investors weighing the aggression of the federal reserve to reduce interest rates and how the movements may affect the broader trade and economic business.

chair Jerome PowellIn his annual speech In the Jackson, Wyoming hole, a symposiumWall Street Hope in easier days when he said the conditions “may require controlling our position on politics”, which are generally seen as “Fedspeak” to reduce rates.

The shares increased, while the cabinet revenue decreased on the news, as the knee reaction continued to reduce prices when the Federal Open Market Committee issued its next decision on September 17.

However, the chanting turned caution on Monday as market experts weighing what was happening after that, even if the step next month was baked. Inventories were mostly less and the shortest treasury revenue, which were more sensitive to the actions of the federal reserve.

“I am more slower than the fastest side if the Federal Reserve goes,” said Jason Granite, the chief investment official of BNY. “Certainly, the door was transferred, instead of kicking it wide open in September.”

On Monday, traders were almost prices in a decrease in the September quarterly points from the current goal rate of the Federal Reserve coach, about 4.3 %. The implicit possibility of 82 % was slightly higher than a week ago but much higher than 62 % a month ago, according to the CME’s Group Fedwatch Futures price scale.

However, there is a little certainty from there.

A potential slow pace forward

The implicit possibility of another reduction in October was only 42 %. This second reduction revolves around its entire price for December, but there are only 33 % expecting three total movements this year.

“I think there is more to play in data between now and the September meeting,” Granite said. “Then the question will start at the center of speed.”

She doubts the center of faster than their arguments about the ongoing concerns about inflation caused by the customs tariff and the economy that is undertaking, despite the signs that the labor market is slowing down.

“Although we are aware of extremist political pressure on the federal reserve to alleviate them, and we recognize the emerging cracks in some labor market data, from our bumps … the issue of discounts appears modest,” said Lisa Shalit, chief investment employee in Morgan Stanley, in a note. “We can only ask – what is the problem exactly, does the Federal Reserve feel urgently to solve it?”

Despite the market pricing, the Morgan Stanley sees a 50 % probability of September reduction. The company also pointed to the uncertainty about inflation, as well as the Federal Reserve’s commitment to independence Heat from President Donald Trump White House officials to reduce rates.

Shalit also warned the clients against putting a lot of belief in alleviating the federal reserve for the next arrows, as “we are wondering about the impact of price discounts in any case, given the fact that the absent recession, the mitigation course is appropriate to be shallow while the interest rate of the largest economic factors has refused.”

Fears more than repeating 2024

In fact, there are continuous questions about the effect of federal reserve rates in the current climate.

At this time a year ago, the central bank entered a mitigation mode that ended up with unintended consequences – a reverse step in treasury revenues and mortgage rates that were pushed by fears that the Federal Reserve may take off its foot very soon with expectations of stronger economic growth.

This is the type of consideration that the veteran in the market, Ed Yardini, wonders about the wisdom of another round of discounts because it worries that Powell may be wrong in the temporary motivation of inflation from the Trump tariff.

“The Federal Reserve will not listen to me. Of course, they will do what they will.” “The cautious story is what happened last year when the Federal Reserve decreased by 100 basis points and the bond returns rose 100 basis points.”

If this occurs again, this will frustrate the hopes of the White House in the decrease in financing costs on the national debt and increase the housing market through a decrease in mortgage rates.

On the bright side, though, Yardeni believes that the stock market collects will get a batch of price cuts, and maintains his upward view of stocks even in the face of a potential policy error. Yardeni believes that S&P 500 can add another 2 % from here to close the year about 6600, then climb another 14 % in 2026 to close at 7500.

“I think we will continue in the bull market, but I think it will be a driving profit,” he said. “If the Federal Reserve does not advance and the lowest rates on September 17, I think my goals may be very conservative at the present time.”