The Federal Reserve held a key policy meeting on Tuesday (September 16), with the market widely expecting the first interest rate cut since December of last year. The two-day Federal Open Market Committee (FOMC) meeting concludes on Wednesday afternoon local time, and the Fed's signals on whether further rate cuts will follow will be a key factor in market trends. The FOMC is currently divided on the future policy path, while President Trump continues to pressure for a rate cut.



Lowering interest rates will make borrowing cheaper for households and businesses, helping to keep spending buoyant and support a seemingly weak labor market. But the risk is that cutting rates too far could reignite inflation, especially if tariffs continue to push up prices.

Federal Reserve Chairman Jerome Powell will hold a press conference at 2:30 p.m. Eastern Time (2:30 a.m. Beijing Time on Thursday). Matthew Luzzetti, chief U.S. economist at Deutsche Bank, noted in a research note that Powell may face a "challenging press conference" as he attempts to articulate the internal debate within the FOMC.

A 25% or 50% interest rate cut?

The Federal Reserve is widely expected to cut interest rates in light of the weak August jobs report, but the unanswered question is by how much.

The Fed is likely to stick to its standard strategy of making small adjustments of 0.25 percentage points at a time, which would bring the benchmark rate down to a range of 4% to 4.25%. However, there is a small chance that the Fed could surprise the market with a more aggressive 50 basis point cut, bringing the rate down to a range of 3.75% to 4%.

The dismal August employment data had sparked market discussions about a larger rate cut, but as the Federal Open Market Committee meeting approaches, the possibility of this has declined significantly and is now close to zero.

Richard Moody, chief economist at Regional Financial Corporation, pointed out in a research report that a small interest rate cut is almost a foregone conclusion , but he also said that other agenda items of this meeting are still full of suspense .

How is the voting lineup composed?

Part of the suspense surrounding the meeting lies in the composition of the FOMC's voting membership on Wednesday.

The Senate voted on Monday to confirm Trump's latest nominee to the Federal Reserve, White House senior economist Stephen Miran. Ian Katz, a policy analyst at Capital Alpha Partners, told clients before the confirmation vote that Miran would arrive "just in time to get his Fed badge, find his restroom location, and cast his vote."

Katz added that this meeting will be the "weirdest FOMC meeting ever," given Trump's ongoing legal battle to remove Fed Governor Lisa Cook, who allegedly falsified mortgage documents, but a federal judge blocked his bid last week and an appeals court ruled against him on Monday.

How many objection votes will there be?

While many analysts do not anticipate a 50 basis point rate cut, they expect the Fed to discuss the possibility and that there could be several dissenting votes at the FOMC meeting.

Deutsche Bank's Luzzetti noted that two Trump appointees, Christopher Waller and Michelle Bowman, are likely to vote for a more aggressive rate cut. They dissented at the last meeting and could do so again on Wednesday. If Milan joins the dissenting vote, it could lead to a rare split at this FOMC meeting.

" If all three governors dissented, it would be the first time since 1988 that three board members dissented simultaneously ," Luzzetti wrote. Additionally, several Fed officials could vote to keep interest rates unchanged, further exacerbating divisions within the FOMC.

What will the dot plot reveal?

The FOMC’s internal divisions are likely to be reflected in the “dot plot” — a chart showing Fed officials’ projections of their expectations for the benchmark interest rate over the next few years.

The dot plot could reveal whether officials are inclined to continue cutting interest rates in October and December, the next two FOMC meetings. Fed officials will also release their dot plots of interest rate projections through 2026 for the first time, providing a hint at how many more rate cuts they expect.

Samuel Tombs, chief U.S. economist at the Pancian Macroeconomics Institute, pointed out in a report to clients that the market is pricing in expectations of "substantial easing," with some investors expecting a 75 basis point rate cut this year and another 75 basis point cut in 2026. But Tombs believes that the FOMC is unlikely to "deliver on these expectations" through its forecasts, but may be more inclined in this direction over time.

"We continue to believe that a substantial easing cycle will unfold gradually based on a combination of inflation and labor market data, rather than from explicit signals from the FOMC in advance ," Tombous wrote.

The Fed's meeting and the expected interest rate cut will have a significant negative impact on the US dollar. Lowering interest rates will directly reduce the US dollar's interest rate differential advantage, weakening its appeal to international capital and leading to capital outflows from US dollar assets.

If the dot plot suggests further interest rate cuts in the future (such as continued rate cuts in October and December), it will strengthen expectations of a medium- to long-term depreciation of the US dollar.