MUMBAI: With the US Federal Reserve preparing for its crucial announcement, all eyes are on whether the central bank will stick to the widely expected 25-basis-point rate cut — or surprise markets with a more aggressive 50 bps move, amid rising economic crosscurrents.
While a 25 bps cut is fully priced in, the debate has intensified in recent days as fresh data paints a more complicated picture: a rapidly softening labour market and still-sticky inflation. Some analysts now believe the Fed could front-load easing with a 50 bps cut today — especially if it wants to stay ahead of a possible economic slowdown heading into 2026.
Jobs market weakens sharply
Recent labour data suggests momentum is fading fast. The US unemployment rate climbed to 4.3 per cent in August, up from 4.2 per cent in July, while job additions slumped to just 22,000, down significantly from 79,000 a month earlier.
More worryingly, revised estimates show the economy created 911,000 fewer jobs in the 12 months through March than previously reported — a major downward revision.
Inflation remains above target
At the same time, inflation isn’t easing as quickly as the Fed would like. The Consumer Price Index (CPI) rose 2.9 per cent in August, up from 2.7 per cent in July — marking the biggest monthly jump since January and keeping inflation well above the Fed’s 2 per cent target.
This evolving macro backdrop — weakening growth but persistent inflation — has sparked concerns that the US economy may be veering towards stagflation, especially if protectionist trade policies and tight immigration rules continue under President Donald Trump’s second term.
However, most economists believe a sustained stagflationary scenario is unlikely.
“The US economy has shown surprising resilience. While there could be a mild recession in 2026 due to tariffs and other factors, high inflation and negative growth don’t typically coexist for long — unless it’s a supply-side crisis, which this doesn’t appear to be,” said Sujan Hajra, Chief Economist at Anand Rathi Group.
Moderate risk
Others echo a similar view — that while the US is slowing, a deep downturn is not on the cards.
“This looks more like a cooling, not a collapse,” said Arindam Mandal, Head of Global Equities at Marcellus Investment Managers. “With immigration constrained, labour supply will remain tight, but strong productivity and positive real wage growth are cushioning the economy.”
He added that the current mix of softening job growth, sticky inflation, and labour market frictions presents challenges — but not necessarily a crisis.
“The Fed still has room to support growth without triggering a hard landing,” Mandal noted.
50–75 bps cuts by year-end?
While today’s move is likely to be a 25 bps cut, some experts believe the Fed could opt for a 50 bps rate cut now to get ahead of the slowdown, or else signal further easing in the coming months.
“A 25 bps cut is almost certain, but if the Fed wants to pre-empt risks, a 50 bps rate cut can’t be ruled out,” said G. Chokkalingam, founder, Equinomics Research. “By December, we expect a total of 50–75 bps in cuts, dependingf on how jobs and inflation data evolve.”
As the countdown to the announcement nears its end, markets remain on edge. The Fed’s tone — and its projections for the rest of 2025 — could prove just as critical as the rate cut itself.
