Federal Reserve Chair Jerome Powell is expected to announce a third consecutive interest rate cut, with markets predicting a quarter percentage point reduction to 3.5%-3.75%. The Federal Open Market Committee is divided between those advocating for further cuts to address labor market weakness and those concerned about inflation. The term “hawkish cut” is circulating, implying a cut with a signal that more may not follow.

The post-meeting statement and Powell’s news conference will reveal the committee’s consensus. The Fed may adjust language in the statement to reflect a more cautious approach to future cuts. Additionally, updates on GDP, unemployment, inflation, and asset purchase intentions are anticipated. Dissent among committee members may influence future policy decisions.

Despite signs of economic uncertainty and rising layoffs, inflation remains a concern for the Fed. Inflation has stabilized but continues to hover above the central bank’s 2% target, fueled in part by tariffs. Fed officials believe tariffs will only temporarily impact prices, but the persistent inflation gap poses challenges. Former Cleveland President Loretta Mester expects one more rate cut on Wednesday, driven by lingering inflation concerns.

The Fed’s decision on interest rates will be closely watched, alongside updates on balance sheet management. With markets speculating on a potential resumption of bond purchases, the Fed may signal a shift in its approach to quantitative tightening. The Fed’s response to economic data and inflation pressures will shape future monetary policy decisions, amid a challenging economic environment.

Read more at CNBC: The Fed decision is expected to feature a rate cut and a lot more. Here’s what to expect