Fed Prepares to Cut, Balancing Inflation Risks and Labor Market Weakness

Northern Trust’s Weekly Economic Commentary previews the September FOMC meeting and weighs the pace of policy easing.

• Growth rebounded in Q2, but consumption and business investment are slowing, with labor market softening after major payroll revisions.

• Inflation is moderating, yet services costs remain sticky; tariffs add upside risk, though expectations remain anchored.

• Baseline view: a 25 bps cut in September, with a total of 75 bps in 2025, followed by one additional move to reach neutral early next year.

How far can the Fed lower rates without unsettling the balance between growth and inflation?