The United States Federal Reserve (Fed) will announce its monetary policy decision and publish its revised Summary of Economic Projections (SEP), known as the dot plot, after its September policy meeting on Wednesday.

Market participants widely anticipate the US central bank will cut its benchmark interest rate for the first time since last December, lowering it to a range of 4%-4.25%.

The CME FedWatch Tool shows that investors see only about a 6% chance of a larger rate cut, while pricing in about an 80% chance of a 75 basis point (bps) cut for the remainder of the year. This means the market expects the Fed to cut rates by 25 bps at each meeting through the end of the year, barring a larger-than-usual cut.

The revised Summary of Economic Projections (SEP), published in June, showed that policymakers' projections imply a 50 bps interest rate cut in 2025—lower than current market expectations—followed by 25 bps in 2026 and 2027. Seven of the 19 Fed officials predicted no rate cuts in 2025, two predicted one rate cut, eight predicted two rate cuts, and two predicted three rate cuts this year.

This new dot plot could represent a significant shift for several reasons. First, since June, disappointing employment data and relatively stable inflation figures have led investors to adopt a more dovish policy outlook. In his last public appearance at the annual Jackson Hole Symposium on August 22, Fed Chairman Jerome Powell acknowledged that downside risks to the labor market were increasing and noted that a reasonable baseline scenario would expect the inflationary impact of tariffs to be short-term.

Meanwhile, the US Bureau of Labor Statistics (BLS) reported that Nonfarm Payrolls rose by only 22,000 in August, while the Unemployment Rate edged higher to 4.3% from 4.2%. Furthermore, a revision to the BLS's preliminary employment data indicated that total nonfarm payroll employment for March 2025 was 911,000, or 0.6% lower than previously reported.

All of this data suggests that the Fed's mandate to support maximum employment may be taking precedence over its mandate for price stability, even as inflation drifts further away from its target.

"Forward guidance will likely be dovish due to the recent weak employment report, but not overly dovish given that excessive inflation remains a key risk in the near to medium term," said analysts at TD Securities. "We believe the SEP will reflect this, continuing to indicate two rate cuts by 2025 while shifting the data projections slightly hawkish," they added.

Another reason to expect a change in the dot plot is political. Senate Republicans confirmed that White House economic adviser Stephen Miran will join the Federal Reserve Board on Monday. Miran, who is seen as a dovish figure and potentially favors a 50 basis point interest rate cut, will be able to vote at the upcoming meeting.

Furthermore, Fed Governors Michelle Bowman and Christopher Waller – candidates to replace Chairman Powell next year – may attempt to convey a dovish message, as they did at the July meeting. Governor Lisa Cook is also expected to participate in the meeting after an appeals court rejected President Donald Trump's attempt to oust her. (alg)

Source: FXstreet