Smaller Rate Cut Expectations Surround Fed
(MENAFN) The probability of the Federal Reserve reducing interest rates by 50 basis points is diminishing, as mounting inflationary pressures take precedence. Instead, some experts suggest that a 25-basis-point cut is more probable in the near term.
The Federal Reserve is scheduled to announce its upcoming monetary policy decision this week, with investors closely following remarks from Fed Chair Jerome Powell for indications on future policy directions.
Based on money market projections, the Fed is broadly anticipated to approve a 25-basis-point reduction at its forthcoming session. Market expectations also point toward three total cuts within this year, with at least three additional reductions likely in 2026.
Analysts, however, continue to question whether a more aggressive 50-basis-point cut could still be an option this month.
Chief Global Economist at Capital Economics, Jennifer McKeown, told a news agency that rising inflation risks suggest “speculation about a 50 bp cut looks overdone,” while noting that revised forecasts may indicate a higher interest rate path than currently assumed by markets.
“Easing labor market conditions mean the FOMC (Federal Open Monetary Committee) is set to vote for a 25 bp cut,” McKeown explained.
She further pointed out that “while Powell's reference to shifting risks was also about the lack of any meaningful impact of tariffs on consumer prices so far, another reason to doubt that the FOMC will vote for a 50 bp is that those risks have not disappeared.”
According to McKeown, the weakening job market suggests the Fed “can afford to look through even a renewed rebound in services inflation.”
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