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Well, here we are again. Tomorrow, the Federal Reserve is widely expected to announce its first interest rate cut of the year. It’s a move that’s been talked about for months, but the timing feels a little… complicated, to say the least. The labor market seems to be losing some steam, which usually calls for a cut. But then you’ve got these tariffs that are probably pushing prices up. It’s a real tug-of-war.
A Seemingly Inevitable Decision
All signs point to a quarter-point cut. That would bring the key federal funds rate down to a range of 4% to 4.25%. If it happens, it’ll be the first time they’ve cut since last December. And honestly, it seems like it’s practically a done deal. The CME FedWatch Tool, which tracks market expectations, is showing a 96% chance of a 25 basis point cut. The chance of a bigger, half-point cut is sitting at just 4%. So, the markets aren’t exactly holding their breath for a surprise.
The Push and Pull on the Economy
The Fed’s job is to walk this tightrope between maximum employment and stable prices. Lately, that walk has gotten a lot shakier. The latest jobs report was pretty soft—only 22,000 new positions were added in August. And to make matters worse, the numbers for the previous months were revised down. Actually, the data for June was adjusted to show a net loss of 13,000 jobs. That’s not a great trend.
But then you look at inflation, and the picture gets murkier. The Fed’s preferred gauge, the PCE index, had been cooling off. It even got down to 2.2% back in April. But it’s been creeping back up since then, hitting 2.6% in July. The core PCE, which strips out volatile food and energy, is even higher at 2.9%. The more commonly known Consumer Price Index (CPI) isn’t much better, sitting at 2.9% with a core reading of 3.1%. It’s not exactly screaming for a rate cut, is it?
What Everyone Else Is Betting On
It’s not just the traditional markets that think a cut is coming. Prediction markets are in near-total agreement. Over on Polymarket, the probability is also at 96%. Kalshi’s data shows a 95% chance for a quarter-point cut, with a 5% chance for something larger and a tiny 2% possibility of no change at all. It feels like the only thing left to wonder about is the wording of the statement and what clues Chair Powell might give about what happens next.
Of course, this is all just speculation based on the available data. Nothing is ever certain until it’s announced.