Markets are already expecting fewer Federal Reserve rate cuts in 2025

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Entering Wednesday's Federal Reserve meeting, markets are pricing in a near 100% chance the Federal Reserve cuts interest rates by 25 basis points, per the CME FedWatch tool. But given recent data that showed the US economy is growing at a solid pace, the labor market isn't rapidly cooling, and inflation's path to the Fed's 2% goal is proving bumpy, many expect the Fed will cut rates by less than initially thought in 2025.

This pushes investor focus to the Fed's latest Summary of Economic Projections (SEP). That includes its "dot plot," which maps out policymakers' expectations for where interest rates could be headed in the future, as well as commentary from Powell during his press conference.

Largely, expectations are for the Federal Reserve to revise up its forecasts for inflation and economic growth in 2025 while revising down its unemployment rate projection. The sum of this data is expected to push the Fed to see a higher federal funds rate at the end of 2025 than officials projected at their September meeting.

But as Yardeni Research chief markets strategist Eric Wallerstein pointed out on X, markets have already largely priced in this outcome.

Given this, anything counter to the narrative will be key to watch when the SEP is released at 2 p.m. ET.
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