Fed's First Rate Cut of the Year Expected to Arrive, But Will Easing Policy Continue?
Currently, the market widely anticipates that the Fed will implement its first rate cut since 2025 following this week's policy meeting. However, for investors, the bigger question is how many more cuts will follow as the Fed contends with a weak labor market, stubborn inflation, and increasing pressure from the White House.
The "dot plot," to be released after this week's meeting, will provide relevant clues. It shows each official's forecast for the direction of the central bank's benchmark interest rate. The dot plot released in June indicated that, due to uncertainties about how the Trump administration's policies on tariffs, immigration, and taxes would impact the economy, most officials expected two rate cuts this year.
So now, will policymakers stick to the forecast of just one rate cut for the remainder of the year, or will they take more aggressive measures in light of new signs of weakness in the labor market? The Fed still has two meetings scheduled this year, in late October and early December.
"They have to look at the data, meeting by meeting. They will be very careful to ensure they maintain balance. If they want to bring down inflation, they will need to maintain a certain degree of restrictive policy. If labor market conditions deteriorate significantly, then they might ease. But we are not there yet," she added.
Luke Tilley, chief economist at Wilmington Trust, expects that the Fed will not commit to future rate cuts this week as it tries to balance weak job growth against inflation. However, he does predict that due to the weak labor market, the Fed will cut rates three times at the next three policy meetings.
In fact, Tilley even stated that he expects the Fed to implement six consecutive rate cuts—three this year and three starting early next year—which would bring the Fed's policy rate down to a range of 2.75% to 3%, seeking a so-called neutral level that neither stimulates nor restrains economic growth.
