What to Expect from the October 2025 Fed Meeting

Key Takeaways

• Markets widely expect the Fed to cut interest rates at its October meeting this week.
• Analysts say Friday’s benign CPI data helped solidify the case for cuts this month and in December.
• Investors will be watching Powell’s remarks for clues about the path of rates in 2026.

Investors are virtually certain that the Federal Reserve will lower interest rates by an additional 0.25% at its October meeting on Wednesday, continuing its efforts to balance a weakening job market with inflation remaining above target. Softer-than-expected inflation data released Friday helped solidify the case for further cuts.

The CPI report was delayed by the ongoing government shutdown, but analysts say the disruption had little impact on the outlook. “While the recent stability in the financial markets reduces pressure on the Fed to cut rates, the weakening employment picture and the latest subdued inflation print all but guarantee additional rate cuts this year,” says Dominic Pappalardo, chief multi-asset strategist for Morningstar Wealth.

Bond futures traders see a 99% chance of a quarter-point cut this week, according to data from the CME FedWatch Tool, and a 94% chance of another quarter-point cut in December. Together those cuts would bring the target federal-funds rate to a range of 3.50%-3.75% from the current 4.00%-4.25%.

Rate Outlook for 2026 Is Less Certain

Lindsay Rosner, head of multi-sector fixed-income investing at Goldman Sachs Asset Management, says that while an October cut is likely “a forgone conclusion,” she’ll be watching for clues about how central bankers are thinking about monetary policy heading into next year. When Fed officials released their “dot plot”—a collection of forecasts for interest rates and economic conditions for the coming months—in September, analysts noted an unusually wide range of predictions.

Rosner is aligned with the market in her expectations for two more cuts in 2025, but “the question mark is what happens in 2026. We’re going to get the beginning of the tea leaves for how the Fed’s thinking about that.”

Balancing Inflation, Growth, and Labor Market Risks

The rate outlook for 2026 depends on how the Fed plans to navigate two conflicting goals: supporting a weakening labor market and bringing down sticky inflation. With new tariffs exerting what appears to be only modest pressure on prices overall, analysts say the jobs picture will be front and center. As the third-quarter earnings season gets underway for US firms, Rosner notes that concerns about tariff-driven inflation have been “less seen and less powerful than initially feared.”

Mike Reynolds, vice president of investment strategy at Glenmede, adds, “We still think the labor market needs more of the Fed’s attention right now.” However, he emphasizes that this balance “is going to evolve over the next couple months.” He says inflation that remains sticky could delay further cuts next year.

Further complicating the picture are measures of economic growth that remain strong. In the third quarter, for instance, real GDP increased at a rate of 3.8%, according to the Bureau of Economic Analysis. Those measures of growth also include solid earnings results and capital expenditure spending by US businesses (especially in the tech sector), as well as measures of productivity and spending by higher income consumers. “It will be interesting to hear [Powell] and the Fed’s take on the dichotomy between strong growth in data and the weakness in the labor market,” says Rosner of Goldman Sachs.

In a note to clients last week, economists from Bank of America said that while they expect central bank officials to acknowledge the recent signs of the strength in the economy, “the broader shift in focus toward the labor mandate probably won’t change.”