"Investors priced in an 87.6% likelihood of a reduction from the Federal Open Market Committee (FOMC) this afternoon, down by 25 basis points to 3.5 to 3.75%. The data has been laying the tracks for such a cut, though speculators also warned last week ahead of the Fed meeting that the committee may be more divided than usual in their outlook on the economy."
"Inflation is sticky at 3%, while the unemployment rate has risen to 4.4% in the past few months. So while a Fed cut often gives markets a boost because it means an influx of cheaper borrowing and, as a result, greater economic activity, it seems a rate cut this month may be more about steadying the ship as opposed to strengthening the currents running beneath it."
"It would be strange to stimulate as U.S. inflation creeps higher, and most projections suggest it has higher to go before it peaks. However, there is little that the Fed can do to directly change the inflation consequences of either supply shocks or trade tariffs. It could offset them by causing deflation in other areas of the U.S. economy, but that might be considered an excessively high amount of economic damage to levy."
Markets expect a 25 basis point Federal Reserve rate cut to 3.5–3.75%, with investors pricing an 87.6% likelihood. Inflation remains sticky near 3% while unemployment has risen to 4.4%, creating tension between price stability and labor-market support. The cut is expected primarily as insurance to steady the labor market rather than to stimulate growth. UBS argues a cut is probably not meant to be stimulatory, noting limited Fed tools to combat inflation from supply shocks or tariffs and warning that offsetting those effects could cause excessive economic damage.
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