What would a dovish Fed look like?

Markets want a September rate cut. Here’s the language we’ll be watching

July 29, 2025 03:31 pm

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It’s Fed Decision Day Eve, and while we’re all but certain interest rates will remain unchanged, tomorrow’s FOMC statement and Chair Powell’s press conference have potential to move markets.

Investors are hoping for a September rate cut, and right now, they’re decently confident that’s what we’ll get. Markers are currently pricing in a 62% chance of a 25bps cut in September, per data from CME Group.

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What kind of language in tomorrow’s statement would assure markets that FOMC members are feeling dovish? For starters: any indication that tariff-related inflationary fears are easing.

We know uncertainty around trade relations has central bankers worried that there could be a relapse in inflation, and that has been a key reason why the Fed hasn’t cut rates so far this year. So if tomorrow’s statement notes that inflation is “easing,” that would be a positive sign for a September rate cut.

What else? Markets would like to see language suggesting that committee members are less concerned about economic uncertainty.

In June, the FOMC wrote the following: “Uncertainty about the economic outlook has diminished but remains elevated.”

If tomorrow’s statement cuts those last three words, it would be a very dovish signal.

We know Powell is going to be asked about when the committee will cut rates, and we know he’s going to be evasive. But should he express confidence in the direction of inflation and the labor market, expect equities to rally.

We’ll be watching tomorrow, and Forward Guidance podcast host Felix Jauvin will be breaking down the statement and Powell’s comments live. Be sure to tune in on X around 3:30 p.m. ET.

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