The U.S. Federal Reserve is anticipated to lower interest rates by 25 basis points at its September 17 meeting, raising the Fed funds target to 4.00%-4.25%. This insight comes from Michael Krautzberger, Global Chief Investment Officer for Public Markets at Allianz GI, in an analysis note.
There is a widespread expectation of a rate cut, though the possibility of a larger 50 basis point reduction remains under consideration.
Matthew Ryan, an analyst at Ebury, states, “A 50 basis point cut would be an extremely pessimistic scenario for the dollar, but such a move is not anticipated, nor is the Fed expected to imply this possibility in the future.”
Currently, markets anticipate a 25 basis point rate reduction on Wednesday, with a non-negligible 10% chance of a 50 basis point cut.
Macro strategist Juhi Dhawan from Wellington Management highlights that “with weak wage data and rising inflation, the Fed faces a potential ‘stagflation’ dilemma and some difficult choices as it tries to balance its dual mandate.”
Xtb notes in an analysis that “given that Federal Reserve Governor Lisa Cook will vote following a court’s nullification of President Trump’s attempt to dismiss her, and considering that Stephen Miran’s appointment to the FOMC may not occur before the meeting, the most likely outcome is a 25 basis point cut rather than a 50 basis point cut.”
“Overall, the U.S. interest rate market is forecasting three 25 basis point cuts for 2025 and a total of 146 basis points in cuts between now and the end of 2026,” according to the weekly forecast.
The Fed meeting commenced on Tuesday and concludes today, when the monetary policy decision will be announced, followed by a press conference led by Fed Chairman Jerome Powell.
The last time the U.S. central bank reduced interest rates was in December 2024. They have since paused, keeping the rate unchanged, which has prompted multiple calls from President Donald Trump for a reduction.
