What to expect in this week's Fed meeting

On September 16th, the Federal Reserve initiated its first wave of meetings, expecting to touch on relative near-future interest rate policy. Hence, leaving investors cautiously optimistic.

The Federal Reserve Bank of the United States.

The last official rate cut by the Federal Reserve occurred in December 2024, leading to the standardized inflation rate falling by 25 basis points, or a full quarter point. However, since that date, the Federal Reserve became hesitant to cut rates further as a result of tariff-related inflation pressures, leading to months of endless rate cut debates, with the earliest being in June.

Since the start of the Trump administration, the central bank led by Jerome Powell adopted a so-called "Wait and See" monetary policy, where it would wait to act on interest rate policy until data is released to substantiate such fiscal policy. Unfortunately for the economy, June and July's CPI data showed rising prices and higher-than-average inflation, leading to the Fed holding rates at an attempt to prevent the taking of loans by companies and leave less cash flowing in the economy.

However, in August economic data showed otherwise. While inflation did not slow, the labor market sank significantly, with losses occurring in mainly manufacturing and federal government jobs, catching the eye of investors. In fact, for the first time since the 2021-2022 inflation debacle, labor became a greater issue for the Fed than jobs. With the advent of such job losses, and a rise in the unemployment rate, the Fed is now considering a rate cut to allow for greater borrowing and subsequently greater job creation.

Many analysts are predicting a 25-basis point cut yet again this month, with some betters even putting their bets on a 50-basis point cut. But one thing is for certain: following Powell's Jackson Hole speech a few weeks ago, he made it clear that the Fed is actively considering a rate cut, to the appetite of investors who've longed for once since December of last year.

The FOMC, the committee in the Fed in charge of such policy, is expected to conclude on September 17th following by an official announcement and press conference led by Chair Powell. This meeting will likely set the tone for economic policy in the final quarter of 2025.

With the appointment of Stephen Miran, a conservative Trump loyalist, into the Fed board of governors, and the attempts by President Trump to remove gov. Lisa Cook, this meeting will also set a precedent for the political future of the Fed, along with its relations with the Trump administration. A federal appeals court allowed Cook to participate in the current meeting.