Changing our Fed call – Next cut delayed until October

We have altered our Fed call, pushing out the next cut in the cycle to October , where we previously forecast a cut in September. The resilience in the labor market is the primary reason for pushing out the next cut. The most recent employment report showed a labor market that is continuing to cool a bit, but with few signs of imminent cracks. This will help to confirm that the risk of continuing to wait before resuming the cutting cycle is low and pausing to observe the impact and degree of passthrough from tariffs is the appropriate path. From October , we see consecutive cuts to normalize policy through June 2026 when the terminal rate of 3% (upper bound) is reached This call is open to risk on both sides, however. Absent a swift deterioration in the labor market, a prolonged period of tariff uncertainty would cement the Fed’s inaction until the December meeting or even into 2026. Alternatively, given the low hire/low fire dynamic in the labor market, a moderate increase in layoffs could have a material effect on the unemployment rate, which would prompt fast e r or deeper easing from the Fed . Next week’s Fed meeting will provide more clarity about expectations about the policy rate and economic developments. Communication from influential Fed speakers suggests that the Committee is comfortable with its current “moderately restrictive” policy and securing target inflation is the primary goal until labor market weakness becomes acute.