The Federal Reserve is expected to announce its first interest rate cut this year on Wednesday despite signs of tariffs pushing inflation higher amid rising concerns about the labor market.
Policymakers on the Federal Open Market Committee (FOMC) are expected to cut the benchmark federal funds rate by 25 basis points, the first since December 2024, which would lower the target range to 4% to 4.25%.
Markets have priced in a cut, with the CME FedWatch tool showing a 96% chance of a 25-basis-point cut and a 4% probability of a larger 50-basis-point cut.
Fed policymakers have been monitoring economic data as they consider adjusting monetary policy in support of their dual mandate to promote maximum employment as well as stable prices in line with the Fed's longer-run 2% inflation target. The September meeting comes as both of those goals are under pressure.
The latest jobs reports from the Bureau of Labor Statistics have shown weakening job creation, with the most recent release showing just 22,000 jobs added in August, with a slight upward revision leaving July's figures at 79,000 and a downward revision to June showing the economy shed 13,000 jobs that month.
The Fed's preferred inflation gauge, the personal consumption expenditures (PCE) index, has trended further away from the Fed's 2% target since this spring. Since PCE inflation fell to 2.2% year-over-year in April, when core PCE also declined to 2.6%, both figures have trended higher as headline PCE rose to 2.6% in July while core PCE inflation rose to 2.9%.
Another popular inflation metric, the consumer price index (CPI), rose in August to 2.9% from the previous year, with core CPI inflation up 3.1%.
