Fed set to make its first rate cut of 2025

The Federal Reserve is widely expected to trim its benchmark interest rate by a quarter percentage point on Wednesday afternoon, while giving investors new clues about how many more cuts could occur during the remainder of the year.

Markets are looking for a 25 basis point reduction, the first of 2025, followed by similar-sized cuts at the last Fed policy meetings of the year, in late October and early December.

How many cuts central bankers envision for the rest of 2025 will come in the form of the Fed’s “dot plot,” a chart updated quarterly that shows each official’s prediction about the direction of the central bank’s benchmark interest rate.

The last dot plot, released in June, revealed a consensus among Fed officials for two cuts this year amid uncertainties about how the Trump administration’s policies on tariffs, immigration, and taxes would impact the economy.

The question is whether policymakers will stick with that prediction, with inflation still running a full percentage point above their 2% target, or get more aggressive about easing monetary policy amid new signs of labor market weakness.

Matthew Luzzetti, chief US economist for Deutsche Bank, said a path for more rate cuts would likely be driven by “risk management considerations,” with greater downside risks to the labor market and more limited upside risks to inflation.

Luzzetti expects three cuts in total this year, with little change to Fed officials’ economic outlook for slow growth, higher inflation, and modestly higher unemployment.

Read more: How jobs, inflation, and the Fed are all related

Wilmer Stith, bond portfolio manager for Wilmington Trust, said he thinks it’s more “one and wait and see.” He thinks the Fed still is concerned about inflation and that the deterioration seen in the labor market this summer is not enough for them to cut further this year.

“Just take a look at the fact that financial conditions are doing very well,” Stith said. “Unemployment has its issues, payroll growth in particular, but when you balance where CPI or core PCE is, I think that should give them a little hesitation.”

Another key issue for investors today is how divided the Fed is on the size of today’s cut, as well as the path forward.

The newest addition to the Fed board, White House adviser Stephen Miran, likely favors a larger cut than 25 basis points. Another Fed governor appointed by Trump, Christopher Waller, has said that any weakness in the August jobs report could lead him to support a bigger cut.