Fed Meeting Tomorrow, September 18: All Predictions on Interest Rate Cuts

Federal Reserve Meeting: Anticipation Surrounds Interest Rate Cuts

The upcoming Federal Reserve meeting on Wednesday, September 18, is poised to capture the attention of the markets.
Will the central bank confirm its first interest rate cut in nearly four years?

This question fuels the predictions of investors and analysts, who are divided between expectations of a modest 25 basis points cut and a bolder reduction of 50 basis points.
Regardless of the extent, any cut would mark the Fed’s first rate decrease since March 2020, when rates were slashed nearly to zero to support the U.S.
economy during the pandemic.

The Fed began raising rates in 2022 in response to rising inflation driven primarily by post-pandemic supply chain issues and the ongoing conflict in Ukraine.
Over the past 14 months, the benchmark interest rate has been held between 5.25% and 5.50%—the highest in two decades—awaiting improvement in economic conditions.

Current Economic Landscape

With inflation trending downward, a cooling labor market, and the U.S.
economy still displaying growth, policymakers are increasingly convinced that the conditions are ripe for a rate cut.
As all eyes turn to the Fed meeting, experts weigh in on what to expect for the near future and the upcoming “dot plot” update.

The Fed’s two-day meeting is already underway, concluding with the official announcement regarding rate changes and dot plot forecasts scheduled for 20:00 (Italian time) on September 18.
While it seems clear that the Fed will announce its first interest rate cut in over four years, uncertainty remains regarding the extent of that cut.

Market data reflects growing trader confidence in a potential 50 basis point cut this week, with the CME Group’s FedWatch Tool showing the implied probability climbing from 50% on Friday to 57% by Monday.
Conversely, expectations for a smaller cut of 25 basis points have decreased to 43%.

Expert Opinions on Future Cuts

Gregory Daco, an economist at Parthenon, stated, “We believe the Fed is behind the curve and should have eased measures as early as June.
Now, it needs to act quickly and may have to bring forward some rate cuts.” Meanwhile, JPMorgan’s Michael Feroli anticipates a 50 basis point cut, arguing the Fed needs to address the softening job market.

Conversely, Goldman Sachs’ chief economist predicts a modest 25 basis point reduction, based on the premise that significant cuts typically correlate with pronounced economic crises, which the U.S.
is not currently facing.

With the backdrop of inflation falling to its lowest level since February 2021, the macroeconomic context for the Fed complicates predictions.
A recent report indicated that core inflation—which excludes volatile food and energy prices—remains stubborn at 3.2% for two consecutive months.

Looking Ahead: What Next for the Fed?

As analysts foresee a rate cut in September, clarity on subsequent actions appears murky.
Some economists expect a total of 75 basis points in cuts across the remaining meetings this year, while others, like those at Citi, predict more aggressive easing of 125 basis points.

The Fed is expected to provide further clarity when it releases updated economic forecasts on Wednesday.
The previous meeting saw FOMC members drastically reduce anticipated cuts from three to just one, but with inflation declining and the labor market softening, expectations are shifting towards further reductions.

Ultimately, the upcoming Fed meeting is laden with expectations and signals about the future trajectory of the U.S.
economy, with global financial markets awaiting crucial decisions that could shape economic indicators for years to come.