Fed Opens Door to Rate Cuts as Pressure Builds for a Larger Move

The Federal Reserve’s cautious pivot toward easier policy has shifted from speculation to expectation, with traders positioning for the first rate cut since 2023. The S&P 500 (Zorrox: SPX500.) has shown tentative gains in recent sessions as investors price in looser monetary conditions, though conviction remains fragile. Inside the Fed, a growing faction is pressing for a bolder move — a half-point cut rather than a symbolic quarter-point trim — to counter slowing growth and tightening credit.

DOVISH TURN GAINS MOMENTUM

Chair Jerome Powell’s latest comments left little doubt that the tightening cycle has run its course. Speaking in Washington, he said the central bank is “attentive to signs of labor-market weakness” and “prepared to adjust policy to sustain the expansion.” His tone — careful but clearly dovish — echoed a wave of remarks from regional presidents who warned that monetary conditions may already be restrictive enough to risk an unnecessary slowdown.

Governor Michelle Bowman said she expects “at least two more cuts this year,” warning that the labor market is showing early signs of fatigue. Boston Fed President Susan Collins echoed that view, arguing that the focus must shift from controlling inflation to preventing job losses.

The most striking shift came from Governor Stephen Miran, who publicly called for a 50-basis-point cut at the next meeting — an unusually direct signal from within the Board. While most of the Federal Open Market Committee still leans toward a smaller step, Miran’s position reflects how rapidly sentiment has turned from restraint to concern.

MARKETS REPRICE THE PATH AHEAD

Bond markets have already adjusted. Two-year Treasury yields fell below 4.2%, the lowest in months, as traders priced in a faster pace of easing. Fed funds futures now imply a strong likelihood of a half-point cut before year-end, with additional reductions expected in early 2026.

The dollar has softened against major peers, while equities have seen cautious relief buying, led by rate-sensitive sectors such as real estate, utilities, and technology. Gold, meanwhile, has surged to fresh highs as falling yields renew appetite for non-yielding assets.

Still, not everyone is convinced the Fed will move aggressively. Inflation remains above target, and some policymakers fear that deeper cuts could reignite price pressures or signal anxiety. Governor Christopher Waller — a centrist voice within the Committee — said he continues to support a 25-basis-point cut “until clearer signs of broad softening emerge.”

POLICY CROSSROADS

The central bank’s next move carries both political and economic weight. With elections approaching and growth uneven, Powell faces a delicate balancing act between credibility and flexibility. Core inflation is cooling but remains sticky in services, while wage growth has slowed without fully easing cost pressures.

Rising jobless claims and weaker manufacturing data hint at a cooling economy. Consumer spending is flattening as credit delinquencies climb and pandemic-era savings fade. To doves, that’s reason enough for a pre-emptive move — better to act early than risk a deeper downturn later.

For Powell, keeping the Committee unified may prove harder than the rate decision itself. Divisions over the scale of the next cut could create policy confusion at a fragile juncture. Markets will parse every word of the next statement for signs of whether the Fed is coalescing around Miran’s call for a half-point move or holding to a slower path.

TIPS FOR TRADERS

• Track Fed funds futures and Treasury yield spreads for signs the market is leaning toward a 50-basis-point cut.

• Watch employment and inflation data — weak payrolls or softer core PCE would strengthen the dovish case.

• Monitor S&P 500 movements; steady momentum in equities (Zorrox: SPX500.) often signals growing confidence in deeper easing.

• Listen closely to regional Fed commentary, as non-voting presidents often foreshadow the Committee’s direction.

• Consider short-term volatility strategies ahead of the next FOMC meeting — recalibration of rate expectations tends to trigger sharp market swings.