US | Fed will likely signal that the 25bp cut will not be a one-off

Summary

With a 25bp cut widely expected, the key question is whether the Fed will frame it as a fine-tuning of its current moderately restrictive stance or as a renewed easing cycle toward a more neutral stance.

Key points

• Key points:
• Incoming activity data since the last meeting continued to point to modest underlying growth, with consumption and investment holding up despite persistent headwinds.
• The latest jobs data upended the story of a solid labor market and erased any chance of the Fed further delaying rate cuts, even as inflation risks persist.
• Inflation data continued to indicate that the pass-through from tariffs to consumer prices remains limited for now, but uncertainty over their full impact persists.
• At one point during last week, the futures market assigned a 10% chance to a 50bp cut—though that likelihood declined to around 3% by the end of the week.
• While some dissent in favor of a jumbo 50bp cut cannot be ruled out, we anticipate that a clear majority will support a 25bp rate cut.

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