The Federal Reserve meets September 16-17 with markets betting hard on a rate cut.
Inflation is still too hot, the labor market is cooling, and consumer spending is slipping.
Powell has to thread the needle: ease enough to calm recession fears without fueling inflation. Here’s where the numbers, the odds, and the risks stack up.
Background: Why This Meeting Matters
The Fed’s juggling a delicate balance: inflation stuck near 2.9%, unemployment creeping up to 4.2%, and consumer spending slowing. The dot plot and Powell’s tone could redefine the market’s outlook for the rest of 2025.
Market Odds: The Betting Line
- 25 bps cut → ~70–75% chance. The baseline move.
- No change → ~20–25% chance. Inflation caution wins out.
- 50 bps cut → ~5–10% chance. Unlikely, but recession fears could force it.
Inflation Snapshot
Core CPI at 3.1% year-over-year, headline at 2.9%. Stubborn, sticky, and still above target. Inflation isn’t done with us yet.
Labor Market Softening
Unemployment at 4.2%, the highest in nearly two years. August jobs growth at 115k, well under the 200k pace of the last cycle.
Wages Losing Heat
Wage growth slowed to 3.8% YoY. Workers are still ahead of inflation, but momentum is slipping.
Consumers Tap the Brakes
Retail sales fell 0.3% MoM in real terms. Spending is flattening, suggesting households are getting cautious.
What the Fed Might Do
The likely play: a quarter-point cut paired with language hedged by inflation worries. A hold is possible, a big cut is unlikely.
The Dot Plot Watch
Markets will dissect the Fed’s rate projections. Expect signals of 1–2 more cuts in 2025, depending on how inflation behaves.
Powell’s Tightrope
Expect dovish tones about growth risks, but a warning shot: inflation isn’t dead. Every word will move markets.
The Takeaway
The Fed wants to calm the slowdown without sparking a new wave of price spikes. This week’s meeting isn’t just about 25 basis points—it’s about whether Powell can keep markets, workers, and inflation in balance.
