The likelihood of a Fed rate cut by September is viewed as 100% by traders.

The Federal Reserve is expected to cut interest rates by September, according to traders.

The CME FedWatch tool predicts that the Fed's target range for the federal funds rate will be lowered by a quarter percentage point to 5% to 5.25% in September, with a 6.7% chance of a half percentage point lower, resulting in a 100% chance that the rate will be lowered.

The consumer price index update for June last week, which showed a 0.1% decrease from the prior month, led to a decrease in annual inflation rate to 3%, the lowest in three years. As a result, odds that rates would be cut in September were about 70% a month ago.

The CME FedWatch Tool calculates probabilities based on trading in fed funds futures contracts at the exchange, indicating where traders are placing their bets on the effective fed funds rate in 30-day increments. However, the actual real-life probability of rates remaining where they are today in September is not zero percent, meaning no traders are willing to risk real money on this prediction.

Jerome Powell's recent hints have further solidified traders' conviction that the central bank will act by September. On Monday, Powell stated that the Fed would not wait for inflation to reach its 2% target rate before beginning to cut, due to the lag effects of tightening.

The Fed is seeking "more certainty" that inflation will reach the 2% target, he stated.

Powell stated that more good inflation data increases confidence, and recently we have been receiving some of that.

The Fed will decide on interest rates on July 31 and again on Sept 18, but not in August.