- Current inflation trends and labour market data suggest little urgency for a 50 basis point rate cut by the Federal Reserve.
- Forecasts favour incremental 25 basis point cuts in 2025, with three reductions expected, followed by two more in 2026.
- September 2025 is projected for the next rate cut, but a larger move appears increasingly unlikely given recent inflation readings.
- Investor sentiment aligns with cautious easing, with sectors such as technology and consumer staples seen as resilient.
- Historical and real-time data underscore a slowing but stable economy that may not require aggressive monetary intervention.
In the evolving landscape of US monetary policy, recent economic indicators suggest that aggressive interest rate reductions, such as a 50 basis point cut, may not align with the prevailing data. As inflation moderates and labour market resilience holds, Federal Reserve officials appear cautious about overstimulating an economy that continues to show balanced growth. This perspective underscores a broader debate on the appropriate pace of policy easing in 2025, where data-driven decisions could favour more measured adjustments over bold interventions.
The Case Against Aggressive Rate Cuts
US economic data through mid-2025 paints a picture of stability rather than distress, potentially diminishing the rationale for a substantial half-percentage-point rate cut. Inflation metrics, while elevated compared to the Fed’s 2% target, have shown signs of cooling without spiralling out of control. For instance, the Consumer Price Index held steady at 2.7% in July 2025, according to recent reports, sparking market rallies but also highlighting persistent pressures that warrant vigilance rather than haste.
Labour market figures further bolster this view. Unemployment has edged up to around 4.2–4.4% in recent months, yet job additions, though below expectations in some reports (such as July’s 73,000 versus forecasts), do not signal a sharp downturn. This fragility is acknowledged in Fed communications, but it aligns with projections of gradual softening rather than a crisis. Goldman Sachs, in a research note, anticipates three 25 basis point cuts in 2025 followed by two more in 2026, reflecting a consensus that incremental steps could suffice to support growth without risking inflationary rebounds.
Inflation Dynamics and Policy Calibration
Core inflation has stabilised near 2%, as noted by Fed Governor Michelle Bowman, who maintains an outlook for three rate cuts this year despite mixed signals. This steadiness comes amid tariff impacts that no longer dominate price pressures, allowing policymakers to focus on broader trends. Reuters reports indicate that while a September cut is nearly certain—pegged at close to 100% probability following moderate July inflation data—the size remains contentious. A jump in wholesale prices has reportedly erased prospects for a “jumbo” 50 basis point move, steering expectations towards quarter-point reductions in September and possibly October.
Historical context reinforces this caution. The Fed’s benchmark rate, last recorded at 4.50% as of June 2025 per Trading Economics data, follows a series of holds and modest cuts aimed at engineering a soft landing. Projections from the Federal Open Market Committee (FOMC) have adjusted over time: in December 2024, officials revised down to two cuts for 2025 while lifting inflation expectations to 2.5%. By mid-2025, forecasts have evolved, with some models lowering GDP growth estimates to 1.4% and inflation to 3.1%, yet these figures do not scream for emergency easing.
Market Sentiment and Investor Implications
Investor sentiment, as gauged by credible sources like Morningstar and U.S. Bank analyses, leans towards optimism for calibrated cuts that sustain market momentum without overheating. Morningstar’s updated interest-rate forecast highlights four key takeaways, including the potential for rates to ease gradually as inflation edges closer to target. U.S. Bank experts emphasise how Fed policy intends to keep inflation in check, suggesting that abrupt large cuts could undermine these efforts.
From a sentiment perspective, Reuters notes that figures like Treasury Secretary Scott Bessent have floated the idea of an aggressive half-point cut amid weak employment numbers, yet this contrasts with data showing moderate inflation increases. Such divergence fuels market volatility, but overall, sentiment from verified financial outlets remains tilted towards measured policy shifts. For investors, this implies a focus on sectors resilient to modest rate environments, such as technology and consumer staples, rather than betting on dramatic pivots.
Analyst-Led Forecasts and Risks
Analyst models, including those from Wolfe Research, outline scenarios ranging from steady growth to potential stalls, with Fed actions pivotal. A base case might involve three quarter-point cuts by year-end 2025, aligning with Bowman’s projections and stiffened by recent jobs data. Risks include stubbornly high inflation—projected at 2.2–2.5% for core PCE in some FOMC dots—which could force a pause if data deteriorates unexpectedly.
Conversely, if GDP growth dips below 1.4% as forecasted in some June 2025 updates, pressure for larger cuts could mount. However, current indicators, including flattened consumer spending and contracting manufacturing, suggest a slowdown that is manageable without outsized interventions. The Leading Economic Index’s 0.3% decline in June 2025 points to headwinds, but not to the extent that justifies overriding data for a 50 basis point slash.
Broader Economic Context
Looking ahead, the Fed’s H.15 release on selected interest rates as of 12 August 2025 provides a snapshot of stability, with the policy range holding at 4.25–4.50%. This continuity, amid debates on labour market fragility, supports a narrative where policy normalisation proceeds cautiously. CBS News reported in December 2024 that fewer cuts were projected for 2025 due to inflation concerns, a theme that persists into mid-year data.
In summary, the state of the US economy—as evidenced by inflation holding at moderate levels, resilient yet softening employment, and adjusted growth forecasts—does not compellingly support a 50 basis point rate cut. Instead, a series of smaller adjustments appears more aligned with the data, offering investors a pathway to balanced returns in a post-pandemic recovery phase. Dry humour aside, one might say the Fed is playing chess, not checkers, ensuring each move counters inflation without toppling growth.
- Monitor upcoming CPI and jobs reports for shifts in cut probabilities.
- Consider diversified portfolios that weather gradual easing.
- Track FOMC statements for evolving inflation and GDP projections.
| Metric | Recent Value (as of mid-2025) | Implication for Rate Policy |
|---|---|---|
| Inflation (CPI) | 2.7% (July) | Moderate pace reduces urgency for large cuts |
| Unemployment Rate | 4.2–4.4% | Softening but not critical; supports measured easing |
| GDP Forecast | 1.4% (2025) | Lowered expectations favour caution |
| Core PCE Projection | 2.2–2.5% | Stubborn levels argue against aggressive moves |
References
- CBS News. (2024, December). Federal Reserve meeting interest rate cut decision. Retrieved from https://www.cbsnews.com/news/federal-reserve-fed-meeting-interest-rate-cut-decision-december-2024/
- Federal Reserve. (2025). H.15 Selected Interest Rates. Retrieved from https://www.federalreserve.gov/releases/h15/
- Fox Business. (2025). Fed Governor maintains outlook for three interest cuts in 2025. Retrieved from https://www.foxbusiness.com/economy/fed-governor-maintains-outlook-three-interest-cuts-2025
- Goldman Sachs. (2025). Fed to cut rates thrice in 2025, twice in 2026. Retrieved from https://investing.com/news/economy-news/goldman-sachs-sees-fed-cutting-rates-thrice-in-2025-twice-more-in-2026-4190365
- Morningstar. (2025). When will the Fed start cutting interest rates?. Retrieved from https://www.morningstar.com/markets/when-will-fed-start-cutting-interest-rates
- Reuters. (2024, December 18). Fed expected to combine interest rate cut with hawkish 2025 outlook. Retrieved from https://www.reuters.com/markets/us/fed-expected-combine-interest-rate-cut-with-hawkish-2025-outlook-2024-12-18/
- Reuters. (2025, August 9). US Fed’s Bowman: Latest jobs data stiffens support for three rate cuts. Retrieved from https://www.reuters.com/business/us-feds-bowman-latest-jobs-data-stiffens-support-for-three-rate-cuts-2025-2025-08-09/
- Reuters. (2025, August 13). Fed cut seen near certain after inflation data; Bessent comments. Retrieved from https://www.reuters.com/business/fed-cut-seen-near-certain-after-inflation-data-bessent-comments-2025-08-13/
- Reuters. (2025, August 14). Fed seen sticking to regular-sized rate cuts after inflation data pops. Retrieved from https://reuters.com/business/fed-seen-sticking-regular-sized-rate-cuts-after-inflation-data-pops-2025-08-14
- Trading Economics. (2025). United States Interest Rate. Retrieved from https://tradingeconomics.com/united-states/interest-rate
- TGNNS. (2025, August 12). US inflation data sparks market rally. Retrieved from https://www.tgnns.com/news/us-inflation-data-sparks-market-rally-federal-reserve-rate-cut-expectations-soar-as-cpi-holds-steady-at-2-7/2025/08/12/
- U.S. Bank. (2025). Federal Reserve tapering asset purchases. Retrieved from https://www.usbank.com/investing/financial-perspectives/market-news/federal-reserve-tapering-asset-purchases.html
- U.S. Bank. (2025). Federal Reserve interest rate outlook. Retrieved from https://www.usbank.com/investing/financial-perspectives/market-news/federal-reserve-interest-rate.html
- X Accounts referenced: @StockMKTNewz, @zerohedge, @burrytracker, @Schuldensuehner, @NickTimiraos, @CyclesWithBach, @kyle_chasse, @WhisperTick, @NickGerli, @Χρήστος, @AI_FinMind, @marnesdad, @USGS_Gov_Sim.
