While some analysts believe the Federal Reserve could cut 50 basis points at its meeting this week,
Who is on the Federal Open Market Committee to vote and who votes for how deep a cut will also provide some suspense to the meeting.
"We're in the 25-basis-point cut camp," said KBRA Chief Strategist Van Hesser. "
When the
Hesser believes the
Still, Hesser noted, policy uncertainty continues to weigh on business and consumer spending. But, at this point, the impact of tariffs on inflation is likely to be "minor," he said, "above the Fed's 2% target, but not at a level that will cause consumers or businesses to be all that concerned."
The Fed is being "responsible" by acknowledging the crosscurrents of a weakening labor market, with inflation — current and prospective — above target, Hesser said.
"The Fed needs to be data dependent. That's the responsible stance when you have such significant crosscurrents and uncertainty that needs to be defined; policy must be conservative," he said.
The balance of risk "has shifted significantly to the employment side," Hesser said, but the Fed still needs "to pay attention to inflation, which is probably a trickier story than is usually the case because of tariffs."
The weakening employment situation "tips the balance back to cutting rates," HSBC Global Investment Research U.S. Economist Ryan Wang and Global Chief Economist Janet Henry said in a note.
A 25-basis-point rate cut would bring the federal funds target to a range of 4.00%-4.25%.
"Our forecast has long been that the Fed will subsequently cut rates to what we consider to be the current neutral rate of 3.5%-3.75% by March 2026 and then stay on hold," they wrote. "Expansionary fiscal policy and continued sticky inflation from tariffs and currency depreciation are among reasons we see 2026 core PCE inflation a little higher than the Federal Open Market Committee policymakers are likely to project."
With "the recent more rapid deterioration in the labor market," they said, the chance of additional easing arises, perhaps with "three consecutive 25bp cuts, rather than only our projected cuts in September and December, followed by one more 25bp cut in March of 2026."
Their interest in the SEP will revolve around "the split between FOMC participants who call for 50bp (or less) of rate cuts this year versus FOMC participants who call for 75bp (or more) of cuts. We estimate this split could end up with 11 in the more hawkish group and eight in the more dovish group."
With the market pricing in around 150 bp in rate cuts in 2025 and 2026, Wang and Henry said, "markets could be disappointed if the dot plot" projects fewer cuts.
The unemployment rate predictions are also worth watching for clues about policymakers' concern about the labor market, they said.
BMO Chief Economist Douglas Porter said the meeting's drama is in the vote. "For starters, we're still not certain exactly who will be voting, as the administration is attempting to block Governor [Lisa] Cook from participating with a late appeal," he said Friday.
Trump is
As many as three voters could dissent, favoring a larger easing, he added.
But Porter said the future moves matter more. "We have been leaning to a steady stream of 25 bp slices every other FOMC meeting until the end of 2026. It's pretty clear that the world will not unfold in such a neat and tidy way, with the risks now leaning to earlier and deeper," he said.
Wells Fargo senior economists Sarah House and Michael Pugliese said the SEP will likely "signal that additional easing will follow September's cut, with the fed funds rate likely to end 2025 and 2026 lower than previously projected."
The statement, they said, "will mark down the FOMC's current view of the labor market but refrain from signaling that additional rate cuts will immediately follow September's cut," giving the panel flexibility.
They expect Trump acolyte Stephan Miran will be confirmed before the meeting for the temporary spot created by the resignation
The SEP, House and Pugliese said, will project three rate cuts this year, with the median for 2026 will be "3.625% to 3.125%, implying an additional 25 bps cut next year."
They expect 25 bp cuts at the remaining FOMC meetings of the year and by 25 bps cuts at the March and June, bringing rates to a range between 3% and 3.25%, then "a prolonged hold."
While the justification for a 25 bp cut "is as straightforward as can be," DWS U.S. Economist Christian Scherrmann said, "we believe the meeting has more to offer."
Scherrmann wants to know "how far FOMC voters are willing to go with dovish signals, how these signals are reflected in their forecasts, and how Fed Chair Powell will frame the decision. Will it be a hawkish labor market insurance cut, or will there be guidance toward a series of cuts, as some Fed officials have suggested?"
Inflation could rise, he warned, and this possibility "should not be dismissed."
Powell likely will "take a more moderate approach," and preach data-dependence, Scherrmann said.
With Powell's term expiring next year, Scherrmann said, he "may be keen to protect his legacy and achieve a soft landing." Still "there will most likely be dissenters again who could argue for cuts of more than 25 basis points."
The longer-term outlook matters more to Yung-Shin Kung, partner and CIO at Mast Investments. "Investors should look beyond the first anticipated Fed rate cut this month and prepare for a longer-term policy shift, which potentially carries inflationary risks and could cut yields for bonds."
RBC Capital Markets' head of U.S. rates strategy Blake Gwinn sees a hold in October after the September move. "We don't think the Fed's destination of ~3.00% terminal rate has changed, even if the timing and path to get there has."
A cut in December will be followed with "a steady pace of 25bp cuts until a terminal target range of 2.75%-3.00% is reached at the June 2026 meeting," he said.
The move is "normalization" of rates, Gwinn said, "rather than an urgent move into accommodative territory, and expect the Fed will be considering subsequent cuts on a meeting-to-meeting basis and could once again stop short of longer-run neutral."
Sticky inflation or economic strength could cut off the easing cycle earlier than currently priced, he said.
A case can be made for a larger cut, according to
Nonfarm payroll growth dropped to 29,000 a month in the three-month average. "Historically, we've never seen job growth slow to a 29,000-per-month pace outside of recessions," he said. And this data is confirmed by initial claims and job opening data.
Still, FHN Financial Chief Economist Chris Low said a case can be made for holding or cutting.
Things supporting a cut include the job market being "in trouble" and tariffs not raising prices as much as expected, and even if they had, tariffs "cause one-time price increases, not sustained inflation."
The case to hold is based on inflation "from tariffs might be understated so far and could accelerate later" since they were implemented over several months and could take a year to 18 months to show up in price increases.
