Rate Cut Probability Reaches 90%, Markets Confident the Fed Is Ready to Ease Policy

Market confidence in the likelihood that the U.S. Federal Reserve (The Fed) will cut its benchmark interest rate has grown significantly. Based on the pricing of various financial instruments, the probability of a rate cut is now considered “almost certain,” with estimates approaching 90 percent ahead of the upcoming monetary policy meeting.

Market Expectations Strengthen

According to a Reuters report, investors are now pricing in a 98 percent probability of a 25 basis point (bps) rate cut in October, along with a 90 percent chance of an additional cut in December. Similarly, data from the CME Group’s FedWatch Tool reflects the same outlook — markets are almost unanimously confident that the central bank will soon begin easing its policy after maintaining a tight stance for the past two years.

A report from Digivestasi.com also supports this view, noting that nearly 90 percent of analysts agree that the Fed is highly likely to cut rates in October 2025. This consensus underscores that monetary easing expectations have become the dominant market narrative among global investors.

Key Drivers Behind Expectations

The optimism surrounding a potential rate cut is supported by several major economic indicators, including:

• Weakening labor market: Recent employment data shows a slowdown in job growth across the U.S., signaling moderation in overall economic activity.

• Stabilizing yet fragile inflation: While inflation has cooled from its previous peaks, external factors such as trade tariffs and supply chain disruptions continue to pose risks to price stability.

• Market sentiment and investor pressure: Market participants believe that monetary easing is necessary to sustain economic momentum amid signs of a global slowdown.

Impact on Financial Markets and Exchange Rates

The strong expectation of a rate cut has triggered swift reactions across global markets.
In Indonesia, the rupiah has strengthened against the U.S. dollar, fueled by growing optimism that the Fed will adopt a looser monetary stance by the end of the year.

This sentiment has also influenced international capital flows, as lower interest rates in the U.S. could prompt investors to shift funds toward emerging markets offering higher bond yields. Consequently, the Fed’s policy direction will play a crucial role in shaping global liquidity dynamics over the coming months.

Risks and Challenges Behind the Optimism

Despite the roughly 90 percent probability of a rate cut, several risks still loom over the potential easing cycle:

• A sudden inflation spike, which could force the Fed to delay or reconsider its rate cut plans.

• Geopolitical uncertainty and global supply chain disruptions, which could threaten growth prospects.

• Internal policy debates among Fed officials over whether current rates remain sufficiently restrictive or need to be lowered.

Some Fed policymakers reportedly remain cautious, warning that cutting rates too quickly could create new imbalances in the financial sector.

Market Has “Priced In” the Cut, But the Fed Waits for Data

With the 90 percent probability now largely priced into asset values, markets appear convinced that the Fed will move toward monetary easing.
However, the actual decision will still depend heavily on forthcoming economic data — particularly inflation and employment figures, which remain the Fed’s key benchmarks in balancing economic growth and price stability.