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The Federal Open Market Committee this afternoon is widely expected to trim its benchmark rate by 25 basis points to 4.00%-4.25%, marking its first cut since last December. The step is in response to a softening labor market, but will occur even as inflation has picked up in recent months, remaining above the Fed's 2% goal. August core CPI rose 3.1% Y/Y, and core PCE for July, the most recent month available, increased 2.9% Y/Y. Furthermore, it's still to be determined whether the steep tariff rates imposed by the Trump administration will be a one-time price increase or lead to more persistent inflation, writes Seeking Alpha.
Deeper dissent? The meeting marks a change in the Federal Reserve's Board of Governors. Stephen Miran, who, until recently, led the White House's Council of Economic Advisers, was confirmed by the Senate as a Fed governor late Monday, allowing him to vote at this week's meeting. He fills the vacancy created when Adriana Kugler resigned from the board about five months before her term ended and marks the third appointee by President Trump. As it currently appears, Lisa Cook will be allowed to vote at the meeting after an appeals court blocked Trump from removing her while her lawsuit against the administration plays out.
More than the rate cut at today's meeting, investors are keen to see the Fed policymakers' expectations for the path of the federal funds rate in the closely watched dot plot. In the June "Summary of Economic Projections," the median projected fed funds rate at the end of 2025 was 3.9%, unchanged from the March SEP. For the end of 2026, the median projection is for 3.6%, up from 3.4% in the prior survey. Another key metric to watch in the SEP is the policymakers' outlook for inflation, which may provide insight about whether they see inflation getting "stickier" or not.
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