Senior economist forecasts this week's Fed meeting while looking ahead to future meetings
A softening job market has seemingly swayed members of the Federal Reserve’s Federal Open Market Committee (FOMC), leading the central bank to an anticipated rate cut on Wednesday.
If the rate cut is indeed a lock, the question remains: how big a swing is the Fed willing to take?
Sam Williamson (pictured top), senior economist at First American, isn’t ruling out the central bank slashing the Fed funds rate by 50 basis points on Wednesday, but believes the 25-bps cut is more likely.
“A 50-basis-point cut wouldn’t be out of the realm of possibility,” Williamson told Mortgage Professional America. “Last September, the Fed surprised markets with a half-point move amid signs of moderating inflation and a softening labor market. Given the uptick in inflation last month, the Fed is likely to remain cautious about cutting rates, making a 50-basis point cut less likely.”
CME FedWatch, which predicts Fed rate movement based on the 30-Day Fed Funds futures prices, lists a nearly 96% chance of a 25-bps cut as of Monday evening. It lists a 4.1% chance of a 50-bps cut. The jobs market has seemingly removed the chances of no rate cut at all, according to Williamson.
“It’s not just the media anticipating a rate cut at the Federal Reserve’s September meeting,” Williamson said. “Investors are also pricing it in, with some even eyeing the possibility of a larger move. Futures markets now imply a 100 percent probability of a cut, driven by weakening labor market data, including a soft August jobs report and rising initial jobless claims.
“While inflation did tick higher, the combination of labor market softness and dovish signals from Fed Chair Jerome Powell has set the stage for potential Fed action.”
Balancing the mandates
The Trump administration, along with many in the mortgage industry, has been calling on the central bank to not only cut rates but to cut them aggressively. Williamson believes that even with the weak jobs market, the Fed will be cautious with cuts to avoid a rapid increase in inflation.
“Assuming labor market data continues to show signs of cooling, our expectation is that the Fed will proceed cautiously, with incoming inflation data serving as the key determinant,” he said. “A softer inflation trend, or no signs of re-acceleration, would allow policymakers to move monetary policy toward a more neutral stance, while stronger readings could force a pause.
“With risks on both sides, the most likely path forward is a gradual approach—small, measured cuts that preserve flexibility and keep the Fed’s inflation-fighting credibility intact.”
The biggest challenge for the Federal Reserve is managing two mandates that are seemingly heading in opposite directions. While inflation continues to rise, which would typically lead the Fed to hold off on cuts, recent weak job reports generally would lead the central bank to slash rates.
“The Fed is navigating a delicate balance,” Williamson said. “Move too quickly on rate cuts and risk reigniting inflation, or delay and risk further labor market deterioration. Policymakers weigh these competing risks through the lens of their dual mandate—price stability and maximum employment.”
While the job market appeared to be strong, the Fed held rates steady to try to bring inflation down close to 2%. However, recent revisions to job reports have shown a significantly smaller number of jobs created than originally reported. With this new data, the Fed likely feels like a rate cut is needed, according to Williamson.
“Until recently, a strong labor market allowed the Fed to keep policy restrictive, despite a modest rise in unemployment,” he said. “Now, with job growth slowing and unemployment trending higher, the trade-off is shifting. Still, with inflation above target, any easing is likely to be gradual and framed as risk management, rather than a policy pivot.”
Fed future uncertain
It is a time of turmoil for the Federal Reserve. Chair Jerome Powell has been under a constant attack from the Trump administration for both being too slow on rate cuts and potential overages in Federal Reserve building construction costs.
Governor Lisa Cook is battling to keep her position on the board while the administration is trying to remove her for alleged mortgage fraud. An appeals court ruled on Monday that she could remain on the Fed board until at least this week’s Fed meeting is completed. That ruling will likely be appealed to the Supreme Court.
Kenneth Katkin, law professor at NKU’s Chase College of Law, explains why a district court’s decision—strategically delayed to limit Supreme Court review—may keep Cook in her seat and clear the path for more aggressive rate cuts.https://t.co/7XxxiSc47g
— Mortgage Professional America Magazine (@MPAMagazineUS) September 9, 2025
Economists wonder what might happen if Trump can get enough appointees on the Fed board to potentially sway the central bank into a more aggressive rate-cutting mindset. Williamson cautions that while there are guardrails in place, politically-driven decisions can often cause problems.
“Rate decisions require consensus among the full Federal Open Market Committee, which acts as a guardrail against abrupt shifts,” he said. “The greater risk lies in perception. If markets view aggressive cuts as politically motivated, rather than data-driven, inflation expectations could rise, pushing long-term yields—and mortgage rates—higher, despite lower short-term rates.”
Rates have been falling heading into Wednesday’s meeting. Williamson thinks that if rates continue to drop near or below 6%, more buyers and sellers might head back into the market.
“Mortgage rates have eased in recent weeks as the 10-year Treasury yield declined on softer economic data and expectations of Fed rate cuts,” he said. “The mortgage spread, which measures the gap between mortgage rates and the 10-Year Treasury yield, has also narrowed to its lowest level in three years. These shifts, alongside softer house price growth, have modestly improved affordability.
“But the lock-in effect remains a powerful headwind, with roughly 81% of homeowners holding loans with rates below 6%. A move toward that level could be the threshold that reactivates refinancing and draws more buyers and sellers into the market.”
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