To forecast Fed policy, one needs to weigh the key forces pulling in opposite directions:

Inflation concerns

• Inflation — especially core inflation — remains elevated and sticky, in part due to tariff effects, supply chains, and broad-based price pressures. Some Fed officials are sounding alarms about giving too much leeway too soon. Reuters+1
• The Fed has emphasized that it wants to see stronger evidence that inflation is slowing sustainably before cutting aggressively.

Labor market & economic softness

• On the flip side, labor market indicators are showing signs of weakening. Unemployment has drifted upward from the recent lows, and hiring is less robust.
• Consumer sentiment is under pressure, and business outlooks are cautious.
• Some Fed minutes and statements show that many members are already concerned about downside risks to growth and employment. AP News+1

Internal Fed division & communication (forward guidance)

• Fed officials are split: some lean more hawkish (resisting cuts) and others more dovish (pushing for easing).
• How the Fed frames its “dot plot” projections, its economic outlook, and its forward guidance will matter a lot. If they signal “data dependence” or caution, markets may interpret it as a slower path of easing.
• The communication risk is high: any signals that cuts are coming too fast could spook markets if inflation reverses.

What I expect for the next Fed meeting

Given the current evidence, my projection is:

• Probability of a 25 basis point (bps) cut is quite high — it seems largely “priced in” by markets.
• A 50 bps cut is unlikely, unless there is a dramatic worsening in data (e.g. a shock drop in jobs, major growth contraction).
• The Fed will likely adjust its projections downward for growth and upward for unemployment (or “less favorable” labor market assumptions).
• The Fed’s forward guidance will matter: I expect them to emphasize that further cuts will be “data dependent” or “gradual,” possibly tempering market expectations for aggressive easing.
• The “dot plot” may show a modest number of cuts for the rest of the year, but perhaps fewer than current market expectations.

If I had to put a single outcome: a 25 bps cut, along with a somewhat cautious tone about further cuts, is the most probable result.

Risks / alternative scenarios

• Downside surprise (dovish surprise): If the economic data before the meeting worsen sharply (jobs collapse, consumer spending tanks, inflation softens more than expected), the Fed might signal more aggressive cuts ahead or even surprise with a 50 bps move.
• Upside surprise (hawkish surprise): If inflation rebounds strongly or supply shocks emerge, the Fed might pull back, delay cuts, or even consider pausing easing, surprising markets on the hawkish side.
• Stalemate / hold: Though less likely under current conditions, there is a risk the Fed holds rates steady if the data are mixed and if they prefer more clarity before acting.

What this implies for markets

• If the Fed delivers a 25 bps cut and leans dovish, rate-sensitive sectors (housing, credit) may rally, fixed-income yields could decline, and equities might get a boost.
• Conversely, if the Fed turns more cautious or hawkish, that could generate volatility (especially in bond markets) and dampen equity gains.
• Forward expectations could shift: markets may revise their pricing of how many cuts remain this year.

Meanwhile

• Home loan rates are low. With decent credit virtually any down payment will get you a mortgage rate in the 5%’s.
• Home loan rates have been wiggling in a very tight range. Mixed economic signals will maintain the current range until a (interpreted) new direction reveals itself sending home loan rates suddenly up or slowly down

Are you in the market for a new home? Great! Negotiate a favorable transaction, lock in your pre-approved loan and march to closing, If rates drop later, take advantage, it’s a free market in the USA!