NEW YORK — Investors will look for the Federal Reserve to communicate how worried it is about the flagging US labor market at its meeting next week and they expect the central bank to cut interest rates for the first time in nine months to shore up employment.
On Thursday, inflation data came in slightly hotter than expected. Still, market players did not expect this would dissuade the Fed from easing rates on Wednesday, following several downbeat reports about US job growth.
More in doubt was the size of next week’s cut and how much the Fed expects to decrease rates in the coming months.
With some recent stability in trade and fiscal policy, “the Fed has moved back onto the front burner for investors going forward,” said Chris Fasciano, chief market strategist at Commonwealth Financial Network.
“Now that the labor market is weakening, the Fed becomes the dominant story for investors as to how they address that,” Fasciano said.
Expectations that the Fed will reduce interest rates have helped lift the major US stock indexes to record highs, along with excitement over the potential of artificial intelligence, strong corporate earnings and calming fears about the economic fallout from President Donald Trump’s tariffs. The benchmark S&P 500 is up 12 percent so far in 2025.
As of Thursday, Fed fund futures indicated that markets were expecting a 90 percent chance that the Fed lowers rates by 25 basis points in next Wednesday’s policy decision, according to LSEG data. The balance of expectations left about a 10 percent chance for a larger-than-standard 50 bp cut.
Of the 55 rate reductions in the fed funds rate since 1990, 60 percent of those have been 25 basis point cuts, according to Nicholas Colas, co-founder of DataTrek Research.
