The United States (US) Federal Reserve (Fed) will announce monetary policy decisions and publish the revised Summary of Economic Projections (SEP), the so-called dot plot, following the September policy meeting on Wednesday.

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

The CME FedWatch Tool shows that investors see only about a 6% chance of a bigger rate cut, while pricing in about an 80% probability of a total of 75-basis-point (bps) reduction for the remainder of the year. This means markets are expecting the Fed to slash interest rates by 25 bps in every meeting until year-end, barring an unexpected larger-than-usual cut.

The revised Summary of Economic Projections (SEP), published in June, showed that policymakers' projections implied 50 bps of rate cuts in 2025 – less than what markets currently expect followed by 25 bps reduction in both 2026 and 2027. Seven of 19 Fed officials pencilled in no cuts in 2025, two of them saw one cut, while eight of them projected two and two of them forecast three cuts this year.

The new dot plot could bring significant changes for several reasons. First, since June, disappointing employment data and relatively stable inflation readings caused investors to lean toward a more dovish policy outlook.

In his last public appearance at the annual Jackson Hole Symposium on August 22, Fed Chair Jerome Powell acknowledged that downside risks to the labor market were rising and noted that a reasonable base case was to expect that the inflation effects of tariffs will be short-lived.

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, the BLS' preliminary benchmark revision to the employment data showed that total Nonfarm employment for March 2025 was 911,000, or 0.6%, less than initially reported.

All these data suggest that the Fed mandate of supporting maximum employment may prevail over that of price stability even as inflation inches further away from its target.

"Future guidance is likely to lean dovish as a result of the recent weak labor reports, but not overly so given an inflation overshoot remains a key risk in the near to medium term," said analysts at TD Securities. "We believe the SEP will reflect this, continuing to show two cuts in 2025 while shifting data projections in a slightly hawkish direction," they added.

Another reason to expect some changes in the dot plot is political. Senate Republicans confirmed White House economic adviser Stephen Miran to join the Federal Reserve Board on Monday. Miran, who is seen as a dove with a potential to prefer a 50 bps cut, will be able to vote at the upcoming meeting.

Additionally, Fed Governors Michelle Bowman and Christopher Waller – a candidate to replace Chair Powell next year could look to send a message by reflecting a dovish stance, as they did in July's meeting. On the flip side, Governor Lisa Cook is expected to participate in the meeting after an appeals court rejected President Donald Trump's bid to oust her.

Source: Fxstreet