Will the Fed cut rates this week? These charts may determine its decision.
The Federal Reserve’s rate decision on Wednesday is shaping up to be its most consequential of the year, with most economists predicting the first cut of 2025. The real suspense is over how deep the reduction could be — and whether the Fed might signal a broader pivot that could set the course for the rest of the year.
So far, the Fed has resisted calls from President Trump to cut its benchmark interest rate, which helps determine borrowing costs for businesses and consumers. Mr. Trump has pointed to the fact that inflation has remained relatively muted, so far this year, as evidence the central bank has been too late in lowering borrowing costs.
Apart from Mr. Trump’s push for a cut, the Federal Reserve is facing growing economic uncertainty ahead of its Sept. 17 meeting, raising the stakes for a rate decision.
On the one hand, the labor market is showing signs of distress, with hiring slowing to a standstill, which would argue for a cut. But inflation is also creeping higher under the weight of the Trump administration’s tariffs, an issue that the Fed has pointed to as its reason for keeping the benchmark rate unchanged so far this year.
Adding to the complications is Mr. Trump’s pressure on the Fed to reduce rates. Federal Reserve Chair Jerome Powell has responded by stressing the independence of the Federal Reserve, pointing out that the Federal Open Market Committee, its 12-member rate-setting group, relies on economic data to make its policy decisions, rather than political pressure.
“The committee tries to get a complete picture of the biggest downside risks for the economy, and then at the end of the meeting, there needs to be some sort of weighting — it’s an art as much as science,” noted Erasmus Kersting, an economics professor at Villanova University.
When will the Fed announce its rate decision?
The Fed will announce its next rate decision at 2 p.m. EST on Sept. 17.
The probability of a 0.25 percentage point cut stands at 96%, according to CME FedWatch, which relies on 30-day Fed Funds futures prices to determine the likelihood. There’s only a 4% probability of a jumbo cut of 0.5 percentage points, the tracker says.
Economists will also be listening for whether the Fed provides guidance on whether it expects additional rate cuts at its next two meetings in 2025, set for Oct. 29 and Dec. 10.
What data will determine the Fed’s decision?
The Federal Reserve has a so-called dual mandate to keep inflation low while also ensuring full employment.
But those two goals can be in conflict with each other because rising inflation requires the Fed to boost interest rates, which tamps down spending by making it more expensive for businesses and consumers to borrow. The Fed’s best weapon for fighting high unemployment, however, is to cut rates, as that makes it cheaper for businesses to expand and hire more workers.
Fed officials will be closely scrutinizing inflation and jobs data as they determine which side of the dual mandate needs more attention.
While the inflation rate has receded from its 2022 peak, it’s still far above the Fed’s goal for a 2% annual rate, and has inched up in recent months as the Trump administration’s tariffs ripple through the economy, pushing some prices higher.
Federal funds rate vs. the CPI (Line chart)
Meanwhile, the labor market is showing signs of distress, with many sectors — including manufacturing, which Mr. Trump has vowed to revive — shedding jobs in August. The result is a marked slowdown in hiring, with employers adding an average of 29,000 each month from June through August, versus about 106,000 workers each month in 2024.
“It’s going to be very difficult, but it will be weighing these two conflicting objectives,” Kersting noted.
Monthly change in jobs in the U.S. (Line chart)
How does the Fed compare with other central banks?
Mr. Trump’s has criticized the Fed’s decision to hold off on cutting this year by pointing to decisions by other central banks, such as the Bank of England and the European Central Bank, to reduce their borrowing costs.
“Europe has had 10 cuts, we have had ZERO. No inflation, great economy — We should be at least two to three points lower,” Mr. Trump wrote on social media in June.
Central bank policy rates (Small multiple line chart)
Yet the U.S. is facing an issue that isn’t as pressing for other nations: Mr. Trump’s tariffs.
Because the tariffs are import taxes paid by U.S. businesses directly to the federal government, the cost is largely borne by American companies and consumers — not other nations. The White House has said exporters abroad bear the brunt of tariffs, while Trump administration officials make the case that more balanced trade with U.S. economic partners over the longer term will create jobs, energize the manufacturing sector and generate federal revenue.
Fed Chair Powell has pointed to the tariffs as a reason the Fed has wanted to keep its powder dry, given that many economists believe the import duties will reignite inflation in the U.S.
The Consumer Price Index (CPI), a closed watched inflation gauge, rose at annual rate of 2.9% in August, the sharpest pickup since January. Heavily imported goods, such as coffee, audio equipment and household furniture, saw some of the steepest price hikes last month, CPI data shows.
How are American consumers holding up?
Many Americans are souring on the economy, feeling pressured by higher costs for everything from housing to groceries.
A recent CBS News poll found that two-thirds of Americans said prices in the past few weeks have continued to rise, and about the same share said they expect that to continue. More than half of consumers said the U.S. economy is getting worse, while only about one-quarter said they believe it’s improving.
The CPI has steadily risen since April, when it fell to an annual rate of 2.3%, or just above the Fed’s 2% target.
Credit card delinquency trends (Line chart)
Meanwhile, Mr. Trump has pointed to mortgage rates that were close to 7% for much of 2025 as a reason for a faltering housing market.
“Could somebody please inform Jerome ‘Too Late’ Powell that he is hurting the Housing Industry, very badly? People can’t get a Mortgage because of him. There is no Inflation, and every sign is pointing to a major Rate Cut,” the president wrote in an Aug.19 post on social media.
U.S. average 30-year fixed-rate mortgage (Line chart)
But mortgage rates are determined by several factors beyond the Fed’s benchmark rate, including the strength of the U.S. economy and the 10-year Treasury note. Already, rates have declined in recent weeks, dipping to 6.35% for the week of Sept. 11, in anticipation of the Fed’s cut and weaker economic data.
Even so, a rate cut could help some consumers by lowering their borrowing costs, experts say.
“A declining interest rate environment will provide some relief for borrowers,” Bankrate financial analyst Stephen Kates said in an email. “Whether it’s a homeowner with a 7% mortgage or a recent graduate hoping to refinance student loans and credit card debt, lower rates can ease the burden on many indebted households by opening opportunities to refinance or consolidate.”
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