The Federal Open Market Committee (FOMC) is anticipated to cut rates by 25 basis points. Attention is on dissenters, particularly on the dovish side, with speculation that Miran, Bowman, and Waller might advocate for a 50 basis points cut.
Kansas City Fed President Schmid may call to keep rates unchanged, having previously suggested that inflation remains a concern. Powell, Barr, Jefferson, Cook, Williams, Goolsbee, and Musalem seem likely to support the 25 basis points cut.
Market Signals and Dissents
Markets will closely examine the mix of dissents, looking for potential dovish or hawkish signals for future decisions. If more members join Miran, Bowman, and Waller for a larger cut, it could indicate a dovish shift.
The dot plots will also be under scrutiny, with projections expected to show a dovish tilt due to Miran’s influence. The previous 2025 median projection was 3.9%, with changes anticipated as more members might now expect rate reductions this year.
The focus will be on how many expect one rate cut versus two or more by year-end. Projections for 2026 and 2027 are expected to show lower rates, possibly around 3% for 2027, reflecting the recent dovish shift.
Fed Pathways and Economic Context
As of today, September 17, 2025, the market is almost certain we will get a 25 basis point rate cut from the Federal Reserve later this afternoon. For derivative traders, the focus is not on the cut itself but on the details that will signal the Fed’s path for the rest of the year. We must be prepared for volatility based on the number of dissenters and the updated economic projections.
The context for this meeting is an economy that has clearly softened compared to previous years. The latest August jobs report showed payrolls growing by a modest 150,000, while the unemployment rate ticked up to 4.1%, a different picture from the much tighter labor market we saw through 2024. With the most recent CPI inflation figure at 2.8%, conditions are ripe for the Fed to continue its easing cycle.
If we see more than the expected three members dissent in favor of a larger 50 bps cut, this is a very dovish signal. This outcome would likely cause interest rate futures to rally as markets would quickly price in a higher probability of another cut in December, which is currently seen as only a 30% chance. This scenario would also likely weaken the US dollar against other major currencies.
On the other hand, a hawkish surprise could come from Kansas City Fed president Schmid dissenting for a rate hold. Given that almost no one expects this, such a move would challenge the market’s easing narrative and could trigger a sharp, short-term spike in the dollar. In this situation, traders holding long positions in equities might consider buying short-term put options on the SPX as a hedge.
Beyond the vote, the dot plot is the next major catalyst. We will be watching to see if the median projection for year-end 2025 shifts decisively to show at least one more rate cut after today. Historically, when the dot plot has surprised markets, like the hawkish shift we witnessed back in mid-2023, the reaction in bond yields has been swift and significant.
Ultimately, the combination of dissents and the dot plot will dictate trading strategies for the coming weeks. A surprisingly dovish tilt, with more dissenters and a lower median rate projection, would reinforce bets on a weakening dollar and falling bond yields into the fourth quarter. An outcome that is simply in-line with expectations may cause implied volatility to fall as a key event risk is now behind us.
