Federal Reserve Considers Multiple Rate Cuts Amid Uncertainty/ Newslooks/ WASHINGTON/ J. Mansour/ Morning Edition/ The Federal Reserve is expected to cut interest rates by a quarter-point, its first reduction in nine months. Economists debate whether cuts will remain gradual or accelerate if recession risks grow. Inflation pressures, weaker job growth, and Trump’s tariffs complicate the Fed’s next moves.
Federal Reserve Rate Cuts Quick Looks
- Fed expected to lower rates by 0.25% to ~4.1%.
- Economists see up to five cuts by mid-2026.
- Wall Street pricing suggests three cuts this year.
- Job growth has sharply slowed, with major revisions.
- Nearly 1 million fewer jobs estimated since March 2025.
- Inflation remains elevated at 2.9% due to tariffs.
- Jerome Powell says Fed recalibrating, not panicking.
- Faster cuts possible if recession fears mount.
Deep Look
Fed Balances Inflation and Weak Jobs Data as Cuts Loom
WASHINGTON — The Federal Reserve is preparing to lower its key interest rate on Wednesday, a move that has financial markets and economists closely watching not just the cut itself but the path that follows.
The widely expected quarter-point reduction would bring the Fed’s benchmark rate to roughly 4.1%, the first cut since late 2024. Investors are now trying to gauge whether the central bank will continue with slow, incremental reductions or pivot to more aggressive action should the economy falter.
Two Paths Ahead
Historically, the Fed has taken one of two approaches when reducing borrowing costs:
- Gradual Adjustments — signaling modest recalibration to support economic growth while avoiding overstimulation.
- Rapid Cuts — used in downturns to counter sharp slowdowns, though often arriving too late to prevent recessions.
At present, most analysts expect the Fed to adopt the first strategy. Wall Street futures data tracked by CME FedWatch indicates traders anticipate three cuts this year and two more by mid-2026.
Economists describe this as a recalibration that could lower rates to just above 3% — a level seen as “neutral,” meaning it neither slows nor stimulates the economy.
Why Cut Now?
The case for easing policy has grown stronger in recent months. The U.S. labor market, long cited by Fed Chair Jerome Powell as a source of resilience, has shown signs of strain.
- Employers cut 13,000 jobs in June.
- Only 22,000 jobs were added in August.
- Government revisions suggest 911,000 fewer jobs were created between March 2024 and March 2025 than previously estimated.
“This is a huge downgrade,” said Talley Leger, chief market strategist at Wealth Consulting Group. “If that doesn’t light a fire under the Fed just from an economic perspective, I don’t know what will.”
The sharp downward revision challenges the Fed’s earlier narrative that strong hiring allowed policymakers to keep rates elevated for longer. With job growth slowing, the argument for easing monetary conditions to spur borrowing and spending has grown more compelling.
Inflation Still Stubborn
Yet inflation complicates the picture. Prices rose 2.9% in August compared with a year earlier, up slightly from 2.7% the previous month. While still lower than peak levels in 2022, the persistence of inflation underscores ongoing pressures in the economy.
Part of the problem stems from tariffs implemented under President Donald Trump, which have increased costs for imported goods like appliances, furniture, and food. Higher input costs make it harder for inflation to cool, even as hiring slows.
For the Fed, the dual challenge is clear: support growth without letting inflation accelerate again.
Powell’s Position
At the Fed’s July meeting, Powell described the job market as “solid” and argued for patience in adjusting rates. But since then, weaker hiring and downward revisions have shifted the calculus.
Still, Powell and colleagues are unlikely to rush. Analysts expect the Fed’s updated economic projections, set to be released Wednesday, will show three total cuts in 2025 and two more in 2026.
“We’re not at a break-glass moment,” said Vincent Reinhart, chief economist at BNY Investments. “This is a recalibration.”
What’s Next?
The Fed’s decision will ripple across markets. Lower rates reduce borrowing costs for mortgages, credit cards, and business loans, providing potential relief to households and companies. But if the Fed misjudges — cutting too slowly and risking recession, or too quickly and fueling inflation — the consequences could be significant.
For now, most economists believe the central bank will proceed cautiously, gradually lowering rates while watching key data. If job losses deepen or consumer spending falters, the Fed may be forced to accelerate cuts. But until then, Powell appears committed to steering a steady, middle course.
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