At 2 AM tonight, the Federal Reserve is highly likely to cut interest rates by 25 basis points.
At 2 AM tonight, the Federal Reserve will officially announce the latest interest rate decision. If "stability" is the primary consideration, then the most reasonable outcome would be a rate cut of 25 basis points, while Powell maintains a mild tone at the subsequent press conference, which not only meets market expectations but also provides a healthier environment for future market trends.
Currently, the weekly chart has achieved three consecutive gains, and the trend has many similarities with last year: the timing window, the background of rate cuts, and the market rhythm all show certain overlap. Overall, the probability of a 25 basis point rate cut this time is almost a certainty, mainly for the following reasons:
1. The labor market continues to weaken.
Since mid-2025, the U.S. job market has noticeably cooled. In July, non-farm payrolls only increased by 73,000, far below expectations, and the data for May and June were significantly revised downwards, totaling a loss of 258,000 jobs. The unemployment rate rose from 4.1% in June to 4.2%. The employment weakness exceeded expectations, which is a key factor driving the Federal Reserve to consider a rate cut.
2. Inflation pressure is relatively mild.
Although core PCE was still at 2.7% in May, slightly above the target, July's CPI remained at 2.7%, below the market expectation of 2.8%, indicating that inflation is not out of control. More importantly, Powell emphasized in Jackson Hole that the impact of tariffs is only a short-term effect and will not lead to long-term inflation, which provides operational space for the rate cut.
3. Market expectations are highly aligned.
The CME FedWatch tool shows that the market believes the probability of a 25 basis point rate cut this time is as high as 96%, while the probability of a 50 basis point cut is only 4%. At the same time, in an industry survey, 105 out of 107 economists expect that this meeting will lower the federal funds rate target range to 4.00%-4.25%, indicating a strong market consensus.
4. The policy stance has shifted to easing.
Whether it's the latest FOMC statement or Powell's speech in Jackson Hole, both have released dovish signals: emphasizing the increased risks of job downturns, the temporary nature of tariff inflation, and that the "balance point" of monetary policy has shifted to easing. This almost locks in the Federal Reserve's rate cut actions.
In summary, if this meeting cuts rates by 25 basis points as expected, accompanied by mild policy statements, it will be more conducive to sustaining market optimism and allow the rate cut bull market to progress more steadily and last longer.