In a widely expected move, the Fed voted to cut the federal funds rate by 25 bps, marking the first rate cut since December 2024. Of the 12 voting members, 11 voted in favor of a 25 bps reduction, while newly appointed Fed Governor Stephen Miran dissented in favor of a 50 bps cut.
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The Fed’s decision came in line with CME’s FedWatch tool, which assigned 96% odds of a 25 bps reduction prior to the announcement. A 50 bps cut carried slim odds of 4%.
Fed Signals Additional Rate Cuts
A majority of Fed officials support at least two more cuts by the end of the year. Each cut is equivalent to 25 bps. One official even called for five more cuts, which would place the federal funds rate between 2.75% and 3.00%. That comes despite the risk of a weakening labor market and sticky inflation.
“Recent indicators suggest that growth of economic activity moderated in the first half of the year. Job gains have slowed, and the unemployment rate has edged up but remains low. Inflation has moved up and remains somewhat elevated,” said the central bank in its Federal Open Market Committee (FOMC) statement.
The Fed will make its next rate cut decision on October 29, with the market currently pricing in 5.9% odds of no change, 93.2% odds of a 25 bps cut, and 0.9% odds of a 50 bps cut.
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