The Fed is set to announce its first interest rate cut of the year tomorrow. The decision comes amid weakening labor market data, despite tariffs putting upward pressure on inflation.
The Federal Open Market Committee (FOMC) is expected to cut its benchmark interest rate by 25 basis points to a range of 4% to 4.25%. This would be the first cut since December 2024.
The rate cut has largely been priced in. According to CME FedWatch Tool data, a 25 basis point cut is given a 96% probability, while a more aggressive 50 basis point cut is given a 4% probability.
The pressures on the Fed’s dual goals of employment and price stability are drawing attention. While the US economy created only 22,000 new jobs in August, data for previous months was also revised downward. In June, it was revealed that the economy lost 13,000 jobs.
The inflation picture is also mixed. The personal consumption expenditures (PCE), the Fed’s preferred indicator, has started to rise again after falling to 2.2 percent annually in April. In July, PCE inflation rose to 2.6 percent, and core PCE to 2.9 percent. The consumer price index (CPI) rose 2.9 percent annually in August, with the core CPI rising to 3.1 percent.
Prediction markets also view a cut as a certainty. According to Polymarket data, the probability of a 25 basis point cut is 96 percent. At Kalshi, the probability of a 25 basis point cut is 95 percent, a larger cut is 5 percent, and no change is approximately 2 percent.
*This is not investment advice.
