The US Federal Reserve will announce its monetary policy for the fourth quarter of the year at the end of the US session on Wednesday, September 17. The bank is expected to cut interest rates by 25 basis points to 4.25% for the first time this year.

Markets began pricing in a rate cut at the Jackson Hole symposium in August, after Powell confirmed the underlying outlook and the shifting balance of risks that require an adjustment in the monetary policy stance. He emphasized that inflation risks remain elevated and that tariff-related inflationary pressures are now clearly evident.
The latest inflation reading for August, announced last week, was higher, with inflation rising by 0.4% in August after a 0.2% increase in July, above expectations. The core index, which excludes food and energy prices, rose by 0.3%, unchanged from the July reading. In contrast, the annualized index rose over the past 12 months to 2.9% from 2.7% in July, matching expectations, while the annualized core index remained unchanged at 3.1% in July.
Conversely, the Consumer Price Index (CPE), which excludes food and energy prices and is monitored by the Federal Reserve, grew 0.3% in July, the same as June’s reading, and rose to 2.9% on an annual basis, compared to 2.8% in June, matching expectations.
The latest labor market figures released in early September fell short of expectations, with the US economy adding only 22,000 jobs in August, compared to the 73,000 jobs added in July, which was revised upward to 79,000 jobs.
Unemployment claims reached their highest level in nearly four years last week, at 263,000. These figures reflect the importance of the Fed’s decision this week and the difficulty of making that decision, as the Federal Reserve aims to achieve full employment and price stability. Consequently, the declining labor market is forcing the Fed to cut interest rates while ignoring concerns about rising inflation.
The Fed’s interest and inflation expectations, which will be released with the decision on Wednesday, will be more important than the rate cut that markets are now pricing in, and whether the Fed will risk rising inflation by cutting interest rates by 75 basis points by the end of the year.
According to the CME’s FedWatch tool, markets are pricing in nearly 97% of a 25 basis point rate cut at the September meeting. Expectations of a 50 basis point cut have declined following the latest inflation figures, which markets were pricing in at 11% in September. More than 80% of the market is pricing in a cut in October and 75% of the market is pricing in a third 25 basis point rate cut at the December meeting. In his final remarks on Monday, the US President indicated to reporters that he expects a significant interest rate cut on Wednesday, and that this is an ideal time for a cut. Markets will therefore closely monitor the Fed’s actions in light of the pressure exerted on it by the US President and his demand for a rapid rate cut.