Kalshi market data shows 40% probability of two rate cuts in 2025 as Goldman Sachs forecasts policy shift in Q3

Investor attention is turning sharply toward the Federal Reserve’s next move. According to a recent update from prediction market platform Kalshi, traders are assigning a 40% probability that the Fed will cut rates twice in 2025, with Goldman Sachs projecting that the first rate cut could arrive as early as September.

This shift comes amid growing signs that the U.S. economy is decelerating and inflation pressures are gradually easing, creating the conditions for a potential policy pivot in the second half of the year.

Kalshi’s traders signal moderation, not panic

Kalshi’s data reflects a nuanced market view:

40% chance of two cuts

23% chance of one cut

20% chance of no cuts

And smaller probabilities for three (13%), four (6%), or five (2%) cuts.

The distribution points to a baseline scenario of mild easing rather than an aggressive rate-slashing cycle. The majority of traders expect the Fed to act, but not in a panic-driven response as seen in prior downturns like 2008 or early 2020.

Charts confirm the trend: Rising confidence in two cuts

Kalshi’s chart tracking rate-cut expectations shows a steady climb in the odds for two cuts since April. The green line, representing this scenario, has risen from around 25% to 40%. Meanwhile, the likelihood of zero or just one cut has slipped, reflecting a soft pivot in market psychology.

This upward momentum is being driven by accumulating signals of a “soft landing.” Business confidence indicators have turned south, real estate activity is cooling, and medium-term inflation expectations are converging toward the Fed’s 2% target.

Goldman Sachs joins the dovish chorus

Goldman Sachs’ forecast marks a turning point. The firm now expects the Fed to initiate its first rate cut in September, citing a cooling labor market, declining wage growth, and steady disinflation across key CPI and PCE components.

This outlook echoes those from other institutional giants like Morgan Stanley and PIMCO, who also view Q3 2025 as the inflection point for policy easing.

Supporting evidence also comes from credit markets. Banks are reporting reduced demand for commercial loans, increased deposit levels, and tighter lending standards – classic signs of slowing consumption and cautious business sentiment.

Market response: Bonds price in softening, equities cheer

In the bond market, the yield curve has begun to flatten, particularly on the 2-year versus 10-year spread. Yields on 2-year Treasuries have dipped slightly, indicating that investors are starting to price in a lower interest rate path.

In equity markets, growth-oriented sectors like tech, real estate, and media have rallied on the back of this new outlook. The Nasdaq-100 has posted solid gains since April, as investors begin to anticipate a more favorable financing environment for rate-sensitive stocks.

But is it enough?

The central question remains: Will two cuts be sufficient? Historical cycles suggest that once the Fed begins to ease, markets often anticipate a follow-through. In 1995 and again in 2019, what began as “insurance cuts” evolved into multi-step easing paths.

Kalshi’s moderate projection doesn’t reflect a financial emergency. Instead, it suggests the Fed may be seeking to recalibrate monetary policy gently, balancing inflation control with economic momentum. But any exogenous shock – from geopolitical risks to a collapse in consumer spending – could accelerate the rate-cutting trajectory.

All eyes on Jackson Hole and inflation prints

Looking forward, the most critical markers will be July and August inflation reports. If CPI and PCE figures come in below a 2.5% annualized pace, the case for easing becomes considerably stronger.

Equally important will be speeches from Fed officials during the Jackson Hole Economic Symposium in late August. This forum has historically served as a platform for major policy signals, and investors will be parsing every word for clues.

Labor market data could tip the scale

Beyond inflation, the Fed will be closely watching employment indicators. A sustained rise in jobless claims, or a slowdown in non-farm payroll growth, would reinforce the argument for a September cut.

Kalshi’s traders appear to be pricing in a scenario in which the Fed has little choice but to act. Whether that action begins cautiously with one cut or builds into a larger series remains to be seen. But one thing is clear – expectations are no longer anchored at “higher for longer.”