With inflation slowly cooling, labor data flashing warning signs, and political pressure mounting, the odds of a surprise Federal Reserve rate cut are rising — though far from guaranteed.
Traders on prediction markets like Kalshi think there’s a 95% chance the rate stays the same in July. Beyond that, there’s a 38% chance of two cuts and a 25% chance of one cut this year. In addition, they put the chances of the rate being above 4.5% in September at 48%.
While most Fed officials remain cautious, key voices inside the central bank are breaking ranks, arguing that now is the time to act.
Here’s a look at what’s fueling speculation of an early pivot.
Waller Leads the Charge for a July Cut
Fed Gov. Christopher Waller, a Trump-era appointee, is publicly calling for a 25-basis-point rate cut at the July 29—30 FOMC meeting. He cites a weakening labor market and believes inflation pressures tied to tariffs are short-term noise, not policy-guiding trends.
Bowman Joins the Chorus
Michelle Bowman, another Trump appointee on the Fed board, echoed Waller’s concern, warning that continued restraint could push job losses higher. Both are increasingly vocal about the need for preemptive action to support a slowing economy.
Labor Market Shows Cracks
June’s jobs report showed the weakest monthly gains since October 2024, with wage growth decelerating and part-time work rising. Some economists now argue that headline numbers mask underlying softness — giving Fed doves ammo.
Inflation Cooling Off
The June CPI came in at 3.1% year-over-year, down from 3.3% in May. Core inflation slowed as well. Fed doves argue that further progress is likely and that holding rates too high could risk an unnecessary slowdown.
Political Heat Turns Up
Trump has sharply criticized Chair Jerome Powell for “choking growth” and demanded rate cuts to cushion consumers and boost markets. While Powell insists the Fed remains independent, the internal split along Trump-aligned lines is hard to ignore.
Most Officials Still Cautious
Despite the vocal minority, the majority of Fed governors remain in “wait and see” mode. They want clearer confirmation that inflation is sustainably heading toward 2% — and are reluctant to appear politically swayed.
Markets Aren’t Betting on July
Fed funds futures show just an 18% chance of a July cut, down from 22% last week. September remains the likelier target, with a roughly 62% probability priced in. But markets are watching data and language shifts closely.
Global Central Banks Are Moving
The European Central Bank and Bank of Canada have already begun cutting rates. Some Fed watchers say staying on hold risks putting the U.S. out of step globally, with consequences for capital flows and the dollar.
July Meeting Is Now a Wild Card
While not the base case, a July cut is not unthinkable. The combination of Waller’s public stance, softer inflation, and sluggish job growth adds new volatility to what was once seen as a hold-and-wait meeting.
What to Watch Next
The July 25 PCE inflation report and any surprise revisions to June jobs data could tilt the balance. If Powell signals even modest dovish movement in his post-meeting presser, markets may start pricing in a sooner-than-expected rate cut cycle.
