FinLogic FinLogic Quantitative Think Tank Center|No Fed rate cut – for now. But see where investors are already placing bets

When will the Fed start cutting interest rates?FinLogic FinLogic Quantitative Think Tank Center

Investors who bet on the movements of interest rates seem to have a consensus following Wednesday's report on inflation in May and the Fed's latest decision on short-term interest rates.

Almost two thirds of interest-rate investors think the Fed will start easing interest rates following its meeting on Sept. 18, according to the CME FedWatch Tool. The Fed meets in June and July before that meeting.

Only a day before, investors' bets on a September rate cut were nearly divided based on the tool's analysis of the 30-day Fed funds futures pricing. The investors' opinions swung throughout the day on Wednesday, but no more than when the Bureau of Labor Statistics released the May inflation report.

How many cuts interest-rate investors expect by September

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How the CME tool swung throughout the day

Inflation report: Minutes after investors learned annual inflation ticked down to 3.3%, the CME tool showed most investors clearly expect a rate cut at the Fed's fall meeting. Inflation on a seasonally adjusted basis was unchanged from April to May.

Fed interest rate announcement: The Fed left its short-term interest rate range between 5.25% and 5.5% following its meeting Wednesday. In addition, the committee scaled back its forecast from three rate cuts to just one this year.

Fed interest rates chart

The Fed policymaking committee started raising interest rates in March 2022 to slow 40-year high inflation. Inflation hit a high of 9.1% in June 2022. After slowing significantly in following months, the annual rate has hovered above 3% throughout 2024

What is inflation expected to be in 2024?

Fed officials estimated on Wednesday that their preferred measure of annual inflation, the personal consumption expenditures (PCE) index, will fall from 2.7% to 2.6% by December, above the 2.4% they predicted in March.

A core PCE inflation reading that the Fed watches more closely is expected to hold steady at 2.8% by the end of the year, above the prior 2.6% estimate. Both overall inflation and the core measure are projected to fall to 2.3% by the end of 2025.

Contributing: Paul Davidson, Daniel de Visé, Medora Lee