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Fed Begins Two-Day Meeting Amid Rising Rate Cut Expectations

The Federal Reserve opened its pivotal September meeting today, with markets pricing in near certainty of the central bank’s first interest rate reduction since December 2024. The Federal Open Market Committee convened at 2:00 PM Eastern Time for a two-day gathering that concludes Wednesday with Powell’s press conference.

Political Pressures Mount as Economic Data Deteriorates

The meeting occurs under unprecedented political tension, with President Trump publicly calling for “larger” rate cuts while continuing efforts to reshape the Fed’s composition. The Senate confirmed Trump’s appointee Stephen Miran just hours before the meeting, while a federal court blocked Trump’s attempt to remove Governor Lisa Cook. This creates what one analyst called the “strangest FOMC meeting ever”.

Market Consensus Points to Quarter-Point Cut

Trading data shows 96% probability of a 25 basis point reduction, bringing the federal funds rate to 4.00%-4.25%. Only a 4% chance exists for a larger 50 basis point move, despite some calls for more aggressive action. The current rate has remained at 4.25%-4.50% since December 2024.

The economic backdrop supporting rate cuts includes August unemployment rising to 4.3% and payroll growth of just 22,000 jobs-the weakest since October 2021. Annual benchmark revisions revealed nearly one million fewer jobs were created than previously reported.

Inflation Concerns Complicate Decision

Despite labor market weakness, inflation remains above the Fed’s 2% target, with core CPI at 3.1% year-over-year in August. Producer prices also showed persistent pressure, with core PPI rising 2.8% annually. This creates a challenging balancing act for policymakers managing the Fed’s dual mandate of price stability and full employment.

Market Impact Already Visible

Financial markets have preemptively adjusted to expected cuts, with gold reaching record highs near $3,690-$3,700 per ounce and the dollar weakening broadly. Mortgage rates have already declined, with 30-year fixed rates falling to 6.35%-the lowest level in nearly a year.

The Fed will announce its decision Wednesday at 2:00 PM ET, followed by Powell’s press conference at 2:30 PM. The meeting will also release updated economic projections and the closely watched “dot plot” showing officials’ rate expectations through 2027.