Among the strongest indications that the Fed is considering cutting rates came from its chair, Jerome Powell, who signaled in a speech at the central bank’s annual retreat in Jackson Hole that the economy could be ready for a reduction.
“The balance of risks appears to be shifting,” Powell said in late August. He acknowledged that the central bank “may warrant adjusting our policy stance,” and while he stopped short of committing to a specific move, his tone marked a shift from earlier in the year. Market odds for a September cut surged above 80% following those remarks, and have remained elevated since the latest labor market data.
Dovish tilt grows as labor market weakens
Michelle Bowman, who dissented at the July meeting to favor a cut, doubled down in August, stating, “I continue to expect three interest rate cuts in 2025,” citing “fragility in labor market conditions” and the need to “hedge against the risk of a further erosion in labor market conditions.” Christopher Waller was even more explicit, saying, “I think we need to start cutting rates at the next meeting,” and left the door open to a larger 50-basis-point move if the data worsened.
Regional bank presidents echoed this shift. John Williams (New York) pointed to “downside risks to employment” and said the Fed would likely need to move “toward a more neutral stance over time.” Susan Collins (Boston) signaled “openness to a rate cut as soon as September,” while Alberto Musalem (St. Louis) acknowledged “increased downside risks” and is now less concerned about inflation.
Caution remains among some FOMC members
Not all voting members were convinced. Jeffrey Schmid (Kansas City) said there was “no rush to cut interest rates,” emphasizing the need for “very definitive data” before supporting a move. Austan Goolsbee (Chicago) described the upcoming meeting as “live,” but remained undecided, stressing the importance of additional jobs and inflation data. Several Board members, including Michael Barr, Lisa Cook, and Philip Jefferson, have not made public statements since July, leaving their positions unclear.
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