Economists Predicts 25bp Fed Rate Cut Over 50bp, Expects Additional Cut Before Year-End

Economists have projected that the Fed rate cut will come in at a 25-basis-point reduction in September rather than a 50-basis-point cut.  They also shared that another cut would come in before the year ends.

Economists Lean Toward Smaller September Cut

According to a Reuters survey report, 107 economists showed near-unanimous agreement that the Fed rate cut will be by 25 basis points on September 17. This would bring the target range to 4.00%–4.25%. 

This follows the mounting evidence of a softening job market. The new U.S. job data showed stagnant August job growth and downward revisions to employment data stretching back 12 months.

Michael Gapen, chief U.S. economist at Morgan Stanley, said the Fed has four months of evidence showing a slowdown in labor demand that appears more persistent in nature. He added that the central bank’s focus has shifted away from immediate inflation risks toward supporting employment.

Only two economists in the poll projected a more aggressive 50-basis-point reduction. This underscores the market consensus that a smaller move is the more cautious option.

Markets now expect as many as three cuts in 2025, compared with only two forecast a few weeks earlier. 60% of economists see rates falling by at least 50 basis points before the year ends. 37% of them predicted total cuts of 75 basis points.

Furthermore, poll respondents expect consumer prices to stay above the Fed’s 2% target until at least 2027. This could raise the risk that aggressive easing could be seen as a policy misstep. Official data due later this week is expected to confirm an uptick in consumer price inflation.

Divergent Voices on the Scale of Fed Rate Cuts

Not everyone is aligned with the prevailing forecast. For instance, Standard Chartered had predicted a 50-basis-point cut. They pointed to the weakest jobs report in nearly four years and an unemployment rate rising to 4.3%. 

Meanwhile, President Trump has amplified calls for steeper cuts. He cited market commentators who argue the Fed rate cut should be by 75 to 100 basis points to stave off deeper economic risks.

Even within the Fed’s policymaking body, divisions are expected. Some governors, including Christopher Waller and Michelle Bowman, opposed holding rates steady earlier this year. This could push for more decisive action or even no change at all. “It’s just a challenging policymaking environment,” said Stephen Juneau of Bank of America, adding that multiple dissents are possible.

Economists believe the Fed may extend its cutting cycle into next year. Consensus forecasts suggest another 75 basis points of reduction in 2026. This would bring the Fed rate closer to 3.00%–3.25%. Bank of America’s Juneau argued that the likelihood of deeper easing increases if leadership at the Fed takes a more dovish turn.