Predict the US rate cuts this month

The Federal Reserve is widely expected to lower interest rates at its upcoming policy-setting meeting on September 17-18, with the magnitude of the cut being closely watched.

1. Probability of a Rate Cut: The likelihood of a rate cut appears high, with markets currently pricing in a roughly 59% chance of a 25-basis point cut and 41% chance of a 50-basis point cut. Analysts generally expect the Fed to stick to a quarter-point reduction, given the slower pace of hiring and the rise in unemployment, despite the labor market still being relatively strong.
2. Fed's Cautious Approach: The Federal Reserve's approach will likely be cautious, considering the need to balance the risks of a tightening labor market against the desire to keep inflation in check. The Fed's decision will depend on the upcoming economic data, particularly the August consumer price index and the monthly jobs report.
3. Market Expectations: Markets are expecting the Fed to cut interest rates, with the CME's FedWatch tool forecasting a 57% chance of a smaller cut and 43% chance of a larger one. However, there are concerns that a larger rate cut could spook financial markets and send the wrong message about an imminent risk of recession.
4. Economic Indicators: The economic indicators suggest a slowdown, but the Fed may weigh the strength of the labor market against the need for rate cuts. The unemployment rate is on the rise but remains low at 4.3%, and job openings have fallen to their lowest level in three and a half years. These factors could influence the Fed's decision on the size of the rate cut.
5. Implications: A larger rate cut could have broader implications, as it might be interpreted as a signal of a more significant economic slowdown, potentially leading to increased uncertainty and volatility in financial markets. The Fed's decision will be closely watched for signals about the future path of interest rates and the health of the economy.