US Federal Reserve’s Federal Open Market Committee (FOMC) members are scheduled to meet next week to determine interest rate policy. The next FOMC meeting is on September 16-17.
Meanwhile, Wall Street expectations for a 25 bps rate cut are running high. At the same time, some experts expect a sharper cut in rates of 50bps, while a few of them predict rates to remain unchanged.
Standard Chartered anticipates a 50 basis point interest rate cut by the U.S. Federal Reserve at its upcoming policy meeting, a revision from their previous 25 basis point projection, attributed to a weak August jobs report.
Morgan Stanley and Deutsche Bank view the August jobs report as insufficient to prompt a 50 basis points rate cut in September, though they anticipate it could lead to cuts at subsequent meetings.
Recent inflation data and job market figures have complicated the Federal Reserve Chairman’s task.
Inflation Untamed
July’s US CPI data threw a surprise for the markets. In July, the US inflation rate held steady at 2.7% but core CPI data accelerated to 3.1% and rose the most in 6 months. Annual core PCE inflation, the Fed’s preferred measure, was 2.9% in July.
US inflation still runs hot and is not within striking distance of the US Fed’s target of 2%. Further, the full effect of the tariff is yet to be seen in the prices of goods.
Still, a case is being made for Powell to announce a rate cut on September 17. A rate cut, if it comes next week, will be triggered not by inflation but by the weakness in the job market.
Job Market
Certain revisions in previous job market data have put the entire set of experts and the think-tank into utter confusion.
All the strategies and the road ahead for the US Fed and other market participants go for a toss if the government data cannot be relied upon.
The Labor Department reported Tuesday that US employers added 9,11,000 fewer jobs than originally reported in the year that ended in March 2025. That means, almost 1 million jobs never existed while they were being reported by a government agency.
The department also reported that the economy generated only 22,000 jobs in August, fueling concerns that President Donald Trump’s unpredictable economic policies, such as significant import taxes, have created business uncertainty and reluctance to hire.
Recent revisions suggest an increased likelihood that the Federal Reserve will reduce its benchmark interest rate at the upcoming meeting to stimulate economic growth.
What will Powell do
Hard to say what US Fed chief Powell will do on September 17. Some more US inflation data is yet to come in, with the Producer Price Index (PPI) report releasing today and the Consumer Price Index (CPI) report tomorrow.
These releases precede next week’s Federal Open Market Committee (FOMC) meeting. A 25 basis point interest rate cut is considered certain, and softer inflation data may increase the likelihood of a 50 basis point cut.