The possibility of a 50 basis point rate cut before the Federal Reserve's interest rate meeting next week has risen to 43%.

Before the Federal Reserve's meeting on September 17-18, the debate over the magnitude of its first rate cut has intensified. Pricing in the futures market shows that the probability of a 50 basis point rate cut has risen to 43%, up from 25% a few days ago, but down from close to 60% probability a week ago. Supporters of a large 50 basis point rate cut believe that this would allow the Fed to get ahead in responding to further weakness in the labor market. On the other hand, a smaller 25 basis point adjustment suggests that officials are trying to strike a balance between a high unemployment rate and inflation rates still above the 2% target. A larger rate cut would help monetary policy move away from tightening more quickly, but it could also signal fear about the health of the economy. Regardless of the size of the first rate cut, the subsequent policy path will be more important than the initial move itself. Federal Reserve officials will release their latest U.S. economic, inflation, and interest rate path forecasts on September 18 in their Summary of Economic Projections. As early as June, different forecasts showed that by the end of 2024, there could be zero, one, or two 25 basis point rate cuts. The median forecast of officials indicates that by 2025 and 2026, there could be cuts of 100 basis points each year. Currently, rate futures markets indicate that the largest likelihood by the end of this year is for a 100 basis point rate cut, and there are further expectations of a 150 basis point cut in 2025. The September economic forecast summary should suggest more easing policies compared to June, mainly in response to deteriorating labor market conditions. In June, officials' median forecast indicated that the unemployment rate would reach 4% by the end of this year. However, the July unemployment rate had already reached 4.3%, slightly falling to 4.2% in August.