The Federal Reserve's upcoming rate decision is shaping up to be its most consequential of the year, with most economists predicting the first cut of 2025.

Washington

The Federal Reserve is widely expected to announce its first interest rate cut of 2025 at the conclusion of its current two-day meeting. Economists, including those at CME Group, have assigned a 100% probability to a rate cut, citing months of weakening in the labor market as a key factor.

While inflation remains a concern, particularly in relation to tariffs, the Fed's focus has shifted to supporting employment. The meeting will also address economic projections for further rate changes and discuss the central bank's independence. Notably, new Fed governor Stephen Moran and current governor Lisa Cook, who is involved in ongoing legal proceedings, are participating in the meeting.

Why the Fed is expected to cut rates for the first time in 2025

We turn now to the Federal Reserve, where the central bank kicked off a two-day meeting that is expected to end with an announcement of the first interest rate cut of 2025. Economists at CME Group put the likelihood we'll see some sort of a cut at 100% probability. Money Watch correspondent Kelly O'Grady joins me now to explain. Well, Kelly, 100%, that seems very likely. Why is it so certain? Yeah, if you're a betting person, now's the time. The reason why it's certain, remember, the Fed's two priorities, it is keeping inflation in check and making sure that we have a healthy labor market. You think about all the data that you and I have been discussing that we got since that last interest rate decision, and it underscores that the labor market is the bigger problem right now. That doesn't mean that prices haven't risen and that there isn't inflation concerns when it comes to tariffs, but the Fed is looking at months of weakening in the labor market, and they said, we don't want that to continue, so we're going to do an interest rate cut and try and spur investment. So what are you looking at? What do you think traders are looking at tomorrow if the interest rate is a done deal? What else are they looking for tomorrow? So we get the very nerdy economic projections that we pour through, and that is going to tell us how many interest rate changes, likely cuts, we're going to get through the end of the year. There are two more meetings after tomorrow, and we're also going to be looking for messaging from the Fed. Is inflation or labor market the long-term problem that they see, or, God forbid, the dreaded stagflation, where you have high inflation and high unemployment. And, of course, the Fed and Chair Jerome Powell, they're also going to face a lot of questions about this question of independence and how they're navigating that. Right. Really interesting. After talking for so long about inflation, now we may very well be talking about the labor piece. Finally, who is at this meeting and why is that important? Okay, so two folks that are in the conversation. One is Stephen Moran. He is the new face. Remember, we had a Fed governor that resigned early from her term that was expected to end in January. He's the replacement. He just got confirmed by the Senate this week. He's taking an unpaid leave of absence from his position in the administration. The other person is Lisa Cook. She is a current Fed governor that the president tried to fire for allegations of mortgage fraud. There's an ongoing legal battle. A recent decision by the Court of Appeals says, hey, she can continue to be in the room, so we are going to see her there. That being said, her being there, it's not really going to change much. We know that they're going to cut. It's just more if she remains on the board in the future, that sort of makeup is important.

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