Fed Meeting: Markets Expect Another Rate Cut, But Decision Remains Uncertain

The Federal Open Market Committee meets this week to decide whether to cut the federal funds rate from 3.75%–4%, following two consecutive 25bps reductions aimed at stabilizing a cooling job market. As of Monday, markets were pricing in an 87% chance of another cut, supported by softer labor data and growing public pessimism about employment.

But a rate cut is not guaranteed. Fed Chair Jerome Powell recently emphasized that officials remain divided—some pushing for further cuts to support jobs, others preferring to hold rates higher to fight inflation. The split has widened in recent weeks, with policymakers signaling sharply different views on the path ahead.

The Fed’s task is complicated by delayed government data caused by the recent shutdown, leaving officials to rely on less-reliable private indicators. These show a clear slowdown: job cuts have climbed to their highest level since 2020, hiring plans are at their weakest since 2010, and the unemployment rate has edged up to 4.4%. Meanwhile, inflation remains stuck above the Fed’s 2% target, pressured by tariffs, corporate uncertainty, and hiring freezes linked to automation.

Investors will closely watch Powell’s press conference and the updated dot plot, which outlines policymakers’ forecasts for growth, inflation, and future rate moves. Some economists expect only one additional quarter-point cut per year through 2027.

The FOMC—made up of 12 voting members including the Fed governors and regional bank presidents—will announce its decision Wednesday at 2 p.m., followed by Powell’s briefing.