Traders see Fed delivering 25 bps cut in Sept, 100 bps by year-end

Investing.com -- Traders have increasingly positioned themselves for the Federal Reserve to initiate interest-rate cuts at its upcoming meeting in September, according to a report from Reuters.

Market participants are now widely expecting a quarter-point reduction in the policy rate rather than the larger half-point cut that some had anticipated.

This shift in expectations follows the release of the U.S. central bank's preferred inflation gauge for July, which showed that inflation rose in line with economists' forecasts.

The Personal Consumption Expenditure (PCE) index, which is closely watched by the Fed, increased by 2.5% year-over-year, slightly below the expected 2.6%, while on a monthly basis, it rose by 0.2%, as predicted.

Despite solid gains in consumer spending, the fact that inflation continues to moderate has bolstered confidence that the Fed will move towards easing monetary policy.

Traders are now projecting that the Fed will cut rates by a total of one percentage point across its final three meetings of the year.

Last week, Fed Chair Jerome Powell signaled a shift in policy stance, stating that "the time has come for policy to adjust," reinforcing market expectations of a more accommodative approach as the year progresses.