Recent market reaction to rate cuts is also a cause for concern. The S&P 500 was down six months after the Fed’s first rate cut in September of 2024, and fell over the six months after its follow-on cuts in November and December of the same year.

The weakening labor market has become the Fed’s prime focus as rate cuts come into view. It’s essentially become a no-hire, no-fire market, which may work fine for people holding on to their current jobs, but it’s rough for unemployed job hunters. That search isn’t likely to get much easier after any rate cuts, experts said.

Bank of America’s closely tracked Fund Manager Survey shows global investors are growing increasingly concerned about the impact of political pressure on the Fed following a series of moves from President Trump.

The Fed is likely to issue a 25 basis point rate cut this week. Options are pricing in a nearly 1% move in the S&P 500 on the day of the decision.

A 25 basis point cut is almost certain. A 50 point slash is unlikely, unless the "outies" of some Fed officials overpower their independent "innies."

A U.S. appeals court declined on Monday to allow Donald Trump to fire Federal Reserve Governor Lisa Cook - the first time a president has pursued such action since the central bank's founding in 1913 - in the latest step in a legal battle that threatens the Fed's longstanding independence.

At the Jackson Hole Economic Symposium, Fed Chair Powell opened the door to rate cuts at this week's meeting. Since then, weak labor data has firmed investors’ beliefs that a quarter-point cut is coming.