September Interest Rate Decision: 25 Basis Point Rate Cut Likely, Three Key Points May Rock the Market

BlockBeats News, September 17th, the Federal Reserve will convey a "three-act play" message to investors at the upcoming interest rate meeting: To what extent are officials readjusting their outlook to reflect a weak job market? How divided is the Federal Reserve becoming? Has Governor Waller's arrival brought a partisan tilt to the Federal Reserve?

Despite the Federal Reserve's desire to avoid political disputes, it has been steadily drawn into the polarized dialogue of Washington. Republicans accuse Biden administration appointees of pushing the Federal Reserve into inappropriate areas such as climate change and racial equity and using rate cuts to garner votes during the 2024 presidential election. Democrats, on the other hand, criticize President Trump's pressure campaign, including attempts to dismiss former President Biden's appointee Governor Quarles, efforts to oust Federal Reserve Chair Powell, and the insertion of Waller into the Federal Reserve.

The magnitude and speed of rate cuts remain a contentious issue, analysts say. This week's meeting may see an unusually high level of dissent, with inflation-wary individuals likely to support no rate cuts, while Waller and two other Trump appointees may back a larger 50-basis-point cut. The latter group has been of the view since the summer that inflation risks have eased and the job market is weakening. Fed governors Waller and Bowman dissented at the July 29-30 meeting, arguing that rate cuts should have happened then, with subsequent job market reports only strengthening their employment concerns. Both officials are on the list of 11 potential candidates to succeed Powell next year.

The market is currently pricing in continued 25-basis-point rate cuts at the October and December meetings, with next year's pace less certain. Michael Feroli, Chief U.S. Economist at JPMorgan, said the median forecast would show three 25-basis-point cuts this year instead of the two predicted in June. However, he also stated that concerns about inflation will not disappear and that "doves have a weaker ability to shape the majority-accepted statement information when voting against."