The trader works on the floor of the New York Stock Exchange in New York City on August 22, 2025.
Spencer Platt | Getty Images
Friday’s lively rally turned into reality checks on Monday as investors scavenged how aggressive the Federal Reserve is to cut interest rates, and how the movement affects the broader business and economic situation.
In her annual speech at Jackson Hole, Wyoming at the symposium, Chairman Jerome Powell gave hope to Wall Street when he said the terms “ensure that we will adjust our policy stance.”
When the Federal Open Market Committee issued its next decision on September 17, the Treasury plunged in the news as the knee larvae responses settled for interest rate cuts.
But even if next month’s moves burn, Chae turned his attention on Monday as market experts hammered what would happen next.
“We’re looking forward to seeing you in the process of exploring the world,” said Jason Granet, BNY’s Chief Investment Officer. “He definitely moved the Door Ajar instead of opening it wide in September.”
Traders on Monday were priced with almost certainty of a decline in the September quarter percentage from the Fed’s current target rate. It is currently about 4.3%. CME Group’s measurement of FedWatch futures prices shows that the 82% implicit probability was slightly higher than a week ago, but well above the odds of 62% a month ago.
However, the certainty from there is less certainty.
Potential slow pace ahead
The unspoken chance of another October cut was just 42%. That second cut is fully priced in December, but there are only 33% expectations for the total three moves this year.
“I think there’s more to be involved in the data between the current and September meetings,” Granett said. “So the questions start to center around pace.”
Skeptics at a faster pace of mitigation center on debates about tariff-induced inflation and ongoing concerns about the economy that endure despite signs that the labour market is slowing.
“We recognize extreme political pressures for the Fed to facilitate, but we acknowledge the cracks that come out of our perch in some labour market data… the case of the cut looks modest.” “And we can’t help but ask. What problem, exactly, do the Fed feel the urgency to resolve?”
Despite market pricing, Morgan Stanley believes there is only a 50% chance of a September cut. The company also cited lowering interest rates in the heat from President Donald Trump and White House officials, uncertainty about inflation and its commitment to independence.
Shalett also warned his clients about putting too much faith in the next foot ease of stocks, given the reality that there is no recession to leave, given the biggest economic agents tend to have shallow interest rate sensitivity.
I’m worried about the repetition of 2024
Certainly there are ongoing questions about the impact of the Fed rate on current climate.
At this point a year ago, the central bank has entered a mode of mitigation with unintended consequences. This was boosted by the Treasury’s reverse move in yields and mortgages and the hopes of stronger economic growth, as well as concerns that the Fed may be taking the brakes off faster.
It’s a kind of consideration that market veteran Ed Yaldeni wonders about another cut wisdom, as he worries Powell is wrong about the temporary impulse of inflation from Trump’s tariffs.
“The Fed won’t listen to me. Of course they’ll do what they’re trying to do,” Yadeni’s research head told CNBC on Monday. “The careful story comes when the Fed lowered 100 basis points last year and bond yields rose 100 basis points.”
If that happens again, it will hamper hopes of reducing the White House’s national debt funding costs and boost the housing market through lower mortgage rates.
On the bright side, however, Yaldeni believes stock market rallies will be boosted by interest rate cuts and maintains a bullish view of stocks in the face of potential policy mistakes. Yardeni believes the S&P 500 will add another 2% from here to close around 6,600, and will be able to go up 14% in 2026 at 7,500.
“I think we’re going to continue the bull market, but I think it’s revenue-driven,” he said. “If the Fed moves ahead on September 17th and the rates drop, I think my goal might be too conservative for now.”
