Wall Street's Rate Cut Calls Grow Louder as September Hike Probability Drops to 55%
N.R. Finch
Market odds for a September Fed hike have plunged from 80% to 55% as surging bond yields tighten financial conditions on their own — Wall Street's debate is shifting from 'will they hike again' to 'when do they cut.'
Why did hike odds drop 25 points in a month?
In July, markets priced a September hike at 80%. That figure now sits at 55%, the lowest in a month.
The reason: bond yields did the tightening themselves. The 10-year Treasury rose 17 basis points in a month to 4.638%; the 30-year surged over 32 basis points in roughly a week, hitting its highest since 2007.
This means → long-end rates have already done part of the Fed's job, weakening the case for a short-end hike.
What is Fed Chair Warsh waiting for?
Warsh has held rates steady for seven consecutive meetings. The last move was a cut last December.
Dennis DeBusschere, chief strategist at 22V Research, put it directly: "The bond market is doing the heavy lifting for the Fed."
In plain terms = Warsh doesn't need to hike because bond-market yields are already tightening the economy for him.
How could payroll data reshuffle the deck?
Markets expect July unemployment to hold at 4.2%, with about 97,000 new jobs.
DeBusschere's framework: 4.2% = strong fundamentals, supports risk appetite; above 4.2% = higher ceiling for growth; below 4.1% = tilt toward risk-off.
This means → employment is the single most decisive variable right now — a 0.1-percentage-point shift could flip sentiment.
Who reins in Big Tech's massive capex?
Microsoft, Amazon, Alphabet, and Meta are projected to spend a combined $750 billion-plus on AI capex this year, rising to at least $1 trillion next year.
Barry Knapp of Ironsides Economics argues: "The market, not the Fed, is starting to restrain the AI infrastructure boom through higher real rates and wider hyperscaler credit spreads."
In plain terms = the spending is so large that the market has automatically raised borrowing costs to cool it — no Fed hike required.
Can oil and geopolitics still upset the timeline?
Brent crude has fallen over 20% since late July, yet remains more than $10/barrel above year-ago levels — enough to keep pushing CPI and PCE higher at least into early winter.
Whether Iran sees any peace progress will directly shape the oil-price path and, with it, the inflation trajectory.
This reflects a stubborn reality: even if every other condition points to cuts, oil alone can independently delay the entire easing timeline.
When might rate cuts actually arrive?
Knapp expects no hike this year and suggests the Fed can address oil-driven inflation by shrinking its $6.7 trillion balance sheet instead.
If payrolls come in soft, oil keeps falling, and tech capex is curbed by market rates, rate-cut calls could intensify early next year.
This means → whether the S&P 500 can break through 8,000 will become the ultimate market test of whether rate-cut expectations are validated.
Content is for reference only, not financial advice.