The Fed held rates steady at 4.25–4.50% in its June meeting, maintaining a cautious stance while inflation shows signs of cooling. Markets are now pricing in a roughly 61% chance of a rate cut in September, down from earlier expectations near 72%, according to the latest CME FedWatch Tool.
Inflation and jobs data keep policy finely balanced
The central bank projects inflation at 3.0% by the end of 2025, with GDP growth slowing to 1.4% and unemployment climbing modestly to 4.5%. Recent payroll figures came in at 147,000 jobs added, beating forecasts of 110,000, while unemployment ticked up to 4.1%. This solid labor market has largely ruled out a July cut, with odds now around 5%.
Analysts at Goldman Sachs expect three 25-basis-point cuts, spread across September, October and December, provided inflation data continues its downward path. Meanwhile, the Fed has stressed it needs clearer evidence that recent trade tariffs won’t reignite price pressures.
Dollar softens as global investors adjust positions
Amid these shifting expectations and persistent fiscal concerns, the dollar has fallen roughly 11% against a basket of major currencies year-to-date. Currency strategists expect further pressure on the greenback if the Fed begins easing later this year, although volatility tied to geopolitical tensions could still reverse the trend.
Crypto and risk assets look to gain
With the backdrop of a patient Fed, risk appetite has returned. The S&P 500 has touched fresh record highs, and futures markets are now pricing a 56% probability of at least 75 basis points in total cuts by year-end.
In the crypto space, Bitcoin surged past $112,500 in late May but has since pulled back, currently hovering near $106,000. Analysts note that while Fed cuts could provide a tailwind, the asset remains sensitive to global liquidity flows and investor sentiment.
Focus now shifts to upcoming data
Markets will be watching the next rounds of inflation and payroll reports closely. If the data confirms a soft landing without a sharp rise in unemployment, the Fed appears on track to begin easing in September. But uncertainty around tariffs and geopolitical risks means the question remains: will this be the start of a sustainable cycle of rate cuts, or could new shocks derail the outlook?
(As of July 7, 2025)
