Fed Rate Cut Probability Falls Below 50 Percent After Waller and Warsh Signal Inflation Vigilance

The Quick Take

• Probability of a US Federal Reserve rate cut at the September 16 meeting fell below 50% per CME FedWatch data after hawkish remarks from Governors Waller and Warsh
• Elevated global bond yields and persistent inflation concerns are complicating the Fed's decision calculus heading into the September meeting
• Sub-50% cut probability is a near-term headwind for Indian equities via the foreign institutional investor flow channel

The drop in September rate cut probability below 50% reflects a meaningful recalibration of market expectations that had at various points priced in a near-certain reduction. Fed Governors Waller and Warsh both signaled that the inflation picture has not sufficiently improved to warrant immediate easing, and with CME FedWatch showing below-even odds, the September meeting has shifted from a likely pivot point to a genuinely uncertain event. This uncertainty premium is already visible in US Treasury yields, which remain elevated and are filtering through to credit costs globally.

For Indian equity markets, the sub-50% cut probability is a headwind primarily through the foreign institutional investor channel. FII flows into Indian equities tend to be positively correlated with US rate cut expectations: when the Fed is expected to ease, dollar assets become relatively less attractive, encouraging capital rotation into higher-yielding emerging markets. A September hold would temporarily remove that tailwind, potentially pressuring the rupee and equity indices in the short term. However, India's domestic fundamentals — earnings growth, retail investor flows and infrastructure spending — provide an independent cushion that limits the downside.

Synthesized from 1 source.