What would a dovish Fed look like?

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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.

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.”