The focus shifts to the job market overtaking inflation! The Fed's rate cut decision marks a major policy shift.

Federal Reserve officials are expected to support a increasingly weakening US labor market by cutting interest rates on Wednesday, marking a policy shift -- previously, the Fed had remained on hold due to concerns about tariffs triggering inflation. This policy shift comes as President Trump continues to pressure for "substantial rate cuts" throughout the week. The attendees for this week's policy meeting have added suspense due to political dramas, but the list is likely to be finalized on Monday night -- when the Senate confirmed a new Fed board member and a delayed court ruling allowed another official to temporarily remain in office. Aside from these uncertainties, investors will focus on Fed Chair Powell and carefully interpret the latest economic forecasts to look for clues on the possible path of interest rates in the coming months. The forecasts will be announced at 2pm Washington time along with the interest rate decision, with Powell's press conference starting 30 minutes later. Fed watchers anticipate that officials' differing views on employment and inflation issues will prevent them from committing to an aggressive rate cut path. Each successive rate cut is going to be more difficult than the last, unless we see signs of continued deterioration in the labor market, said Aditya Bhave, a senior economist at Bank of America. Voting Makeup While the central bank's interest rate decision will be the main focus for many Fed watchers, the unusual circumstances surrounding the composition of the Federal Open Market Committee (FOMC) responsible for setting interest rates have been a news focus leading up to the meeting. Trump ally Stephen Moore was sworn in on Tuesday morning, just in time for the meeting. Trump nominated him to fill a vacant seat on the Fed board. Moore came under fire for refusing to step down as chair of the White House Council of Economic Advisers. Instead, he chose to take a leave of absence, raising questions about his ability to act independently while serving at the Fed. Meanwhile, a divided appellate court ruled Monday night that Fed Governor Lael Brainard can continue to work at the central bank while challenging Trump's decision to dismiss her. The Trump administration plans to ask the Supreme Court to allow the president to dismiss her on allegations of mortgage fraud, which Brainard denies. Kathy Bostjancic, chief economist at Allianz Global Investors, said the exact makeup of voters and whether Brainard is ultimately allowed to stay at the Fed are unlikely to substantially change the rate path in the coming months. However, if the president successfully replaces Brainard (whose term on the Fed board does not end until 2038), it could affect the long-term trajectory of interest rates. After Powell's term ends in May, Trump will also nominate a new Fed chair. Moore's term ends in late January, but he could be nominated for a longer-term position, or stay at the Fed until Trump nominates someone else for the position. Powell is likely to face questions at the press conference about all these issues, and whether they pose a threat to the Fed's independence from the White House. Internal Fed Dissent Fed watchers believe that there may be dissent on both sides of the debate over the expected 25 basis point rate cut, with some officials possibly supporting a larger rate cut while others lean towards keeping rates unchanged. Ultimately, the disagreement stems from whether policy makers are more concerned about the labor market on the brink of severe deterioration or are primarily worried about inflation potentially accelerating due to tariffs. US job growth slowdown raises concerns about economic recession Fed Governors Christopher Waller and Michelle Bowman, appointed by Trump during his first term, voted against keeping rates unchanged in July, citing concerns about the labor market. Data released since that meeting shows a significant slowdown in job growth, sparking wider concerns about potential economic downturn. Meanwhile, Bostjancic pointed out that the inflation rate remains above target levels, despite the transmission of tariffs to final prices being more moderate than initially feared. If three officials voice dissent, it will be the first time since September 2019 that more than two officials have voted against an interest rate decision. New Forecasts Economists surveyed generally expect officials to forecast two rate cuts this year, consistent with forecasts submitted in June. This means that only one more rate cut is expected after this week's meeting (possibly in October or December). Bhave said that the June forecasts for inflation and unemployment rate remain valid, giving officials no reason to add more rate cuts to the baseline outlook. However, a significant portion (over 40%) of surveyed economists believe officials will forecast three rate cuts by 2025. These forecasts will also reveal how much easing policies officials expect next year, and how they view the progress of inflation and unemployment rates.