The Fed is widely expected to cut interest rates this week. The only question is, how big will it be?While nothing is certain, investors widely anticipate a rate cut this week when the Federal Open Market Committee (FOMC) meets on Tuesday and Wednesday.The latest polling from CME FedWatch has 0% chance of the Fed not reducing rates on Wednesday. Specifically, 96.4% of interest rate traders expect a 25 basis point cut while the other 3.6% anticipate a 50-basis point cut.The sentiment for a 50-point cut has waned in recent days. Just a week ago, 10.6% thought there would be a half-point cut, but the higher CPI inflation numbers for August likely threw cold water on a 50-point reduction.“August’s CPI print shows inflation is still hanging around,” Gina Bolvin, president of Bolvin Wealth Management Group, said. “The uptick to 0.4% monthly and 2.9% annually keeps the Fed cautious. Core inflation at 3.1% suggests we’re not out of the woods yet, but we’re not heading into the deep end either. The Fed may still cut, but this data argues for a gradual path, not an aggressive pivot.”The other factor that may have potentially slowed the Fed’s roll is the weak consumer sentiment report that came out Friday.The University of Michigan’s Surveys of Consumers showed that consumers are growing increasingly pessimistic about the economy.Overall index fell to 55.4%, down from 58.2% in August and 70.1% in September 2024.Current conditions dropped to 61.2%, down from 61.7% in August and 63.3% a year ago.Consumer expectations plunged to 51.8%, down from 55.9% in August and 74.4% in September 2024.The consumer expectations score is the lowest since June 2022 when it was 44.2%. It is even lower than April when it fell to 52.2%.Longer-term inflation expectations also ticked higher, rising to 3.9% in September. However, while it has risen over the past two months, it remains lower than the 4.4% inflation expectations in April.“Financial markets are pricing in a rate cut at the Fed’s decision next Wednesday, but modestly reined in the likelihood of an outsize half-percent cut this morning after the consumer survey showed inflation expectations rose,” Bill Adams, chief economist for Comerica Bank, said. “Comerica forecasts for a quarter percentage point cut at Wednesday’s Fed decision. The Fed can be expected to cut rates further in coming months; the question is how much, not if.”CME FedWatch pegs the odds of another 25-point cut on October 29 at 77.6%, with 72.7% calling for a third rate cut in December.The Fed will also release its dotplot this week, so investors will see if the consensus among FOMC members targets three rate cuts in 2025.“It will be worth watching for a gap between the FOMC statement’s guidance, which represents the consensus view of all FOMC members, and Chair Powell’s own statements in the press conference, which reflect his personal view,” Adams said.Original Post