The probability that the Federal Reserve could keep interest rates unchanged throughout 2025 surged on Wednesday following Chair Jerome Powell's latest remarks, adding fresh uncertainty to the outlook for monetary policy.
What Happened: On Wednesday, in a post on X, The Kobeissi Letter highlighted the surging odds of there being ‘Zero’ rate cuts in 2025 in the prediction market, Kalshi.
“The odds of the Fed cutting rates 0 times in 2025 surge to 25% after Powell’s press conference,” it says, amid an increasingly hawkish tone by the Fed Chair.
Before Powell's press conference, markets had placed higher odds on two rate cuts. But as of the latest update, “The odds of 2 rate cuts have fallen from 40% to 33% and the odds of 1 rate cut are up from 24% to 27%,” the post said.
That shift in sentiment suggests traders and investors are increasingly skeptical that the central bank will deliver any significant easing. The post concludes by saying, “Rate cuts are being priced out of markets.”
Why It Matters: Despite months of relentless pressure from President Donald Trump to cut interest rates, the Federal Open Market Committee (FOMC) has decided to hold interest rates steady at 4.25%-4.50% in its July decision on Wednesday.
Two permanent members of the board, Michelle Bowman and Christopher Waller, both appointed by Trump, dissented during the meeting, arguing in favor of an immediate 25-basis-point rate cut. This marks the first dissent in the FOMC since 1993.
Economist Mohamed El-Erian said that Powell “sounds more hawkish than many expected on the outlook for policy rates,” following his press conference on Wednesday.
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