What To Expect After The Fed Cuts Rates

Has there ever been an interest rate cut with such a long, dramatic, scrutinized gestation period? No matter, Wall Street is already thinking, what have you done for me lately? 

The Federal Reserve reconvenes today for what may just be the most loaded, and consequential, central bank meeting in modern history. A quarter-point slash is now all but certain to be announced tomorrow — and indeed Fed Chairman Jerome Powell has hinted as much since the group’s last meeting in July. But is the seemingly never-ending era of “higher-for-longer” truly over? Or is there an even more fraught period of monetary policy to come?

A Two-Front War

To be clear: conventional wisdom says that this week’s rate cut (a 96% certainty as of Monday, according to CME’s FedWatch tool) is just the first step in a prolonged rate-slashing campaign. Traders are roughly 70% certain of another quarter-point cut at each of the Fed’s remaining meetings this year, in October and December, per FedWatch. Meanwhile, Goldman Sachs analysts are pricing in two more for 2026, while Morgan Stanley analysts are penciling in three cuts next year — in January, April, and July. 

Recent data shows the labor market is cooling even faster than previously thought. Meanwhile, Wall Street traders don’t just see cuts as a way to stave off a recession, but as fuel for an economic resurgence — The Wall Street Journal dubbed it the “run-it-hot” trade on Monday, as equities continue to notch new records.

Still, not everyone is as optimistic — and, as per usual, Fed Chairman Jerome Powell may soon again find himself between a rock and a hard place:

• Data released from the US Labor Department last week showed that inflation increased 2.9% year-over-year in August, or the highest reading since January, and 0.4% month-over-month. Both metrics marked an acceleration from the month before, and evidence suggests consumers are just starting to feel the tip of the spear of tariff-induced inflation.
•  “[The Fed] will not be cutting because we have good news on inflation. They’ll be cutting because we have bad news on employment,” Claudia Sahm, New Century Advisors chief economist and a former Federal Reserve Board economist, told Yahoo Finance. 

Three’s Company: Future fed meetings will likely remain contentious. If all goes according to plan and paperwork gets filed quickly, the White House’s Fed board of governors nominee Stephen Miran — who received senate approval on Monday — may join the central bank’s meeting today. Miran is expected to push for a more hawkish half-point cut, in-line with the White House’s preferences. That also means Powell may soon be managing a Fed board that isn’t just divided — but divided three different ways: fast-cutters, slow-and-steady cutters, and wait-and-seers. Nor does anyone expect the Greek chorus in Washington that’s been hounding him to stop anytime soon.