Fed Expected to Cut Rates Despite Rising Inflation

Recent economic data indicate a deceleration in the U.S. economy, which has led to widespread expectations that the Federal Reserve will cut interest rates at the upcoming September 17 FOMC meeting. Despite the Consumer Price Index showing inflation slightly higher than anticipated, particularly in medical care and food, the Fed is likely to prioritize labor market weaknesses as justification for a rate cut, aligning with President Trump's policy preferences. Historically, Fed rate cut cycles often coincide with economic recessions, though there have been exceptions, and current unemployment remains low at 4.3%, leaving uncertainty about future labor market conditions. The stock market typically reacts positively to rate cuts over the longer term, although volatility and selloffs can occur immediately before and after the initial cut. This anticipated Fed easing contrasts with other major central banks like the European Central Bank and Bank of Japan, which are maintaining or increasing rates amid differing inflationary challenges. Market consensus strongly favors a rate cut, with traders pricing it in almost fully, and the Fed appears unlikely to deviate from this path despite recent inflation reports.