25bp Fed cut "in the bag" as Powell "laser focused" on countering downside risks to jobs market

We think a 25 basis point cut from the Fed is in the bag this week, notwithstanding the lack of official US data releases in recent weeks. Fed officials won’t be flying completely blind going into the meeting, although they will be traversing in partial fog due to the federal closure. Yet, we see nothing in either the available data, or the data still conspicuously missing, that could have conceivably derailed an October cut, and officials can be content in cutting rates this month without possessing a holistic view on the economy.

For now, the Fed is laser-focused on countering the downside risks to the jobs market, and that should translate into two cuts between now and year-end.

The Fed has an undeniably tough task on its hands, however, and the path for rates in 2026 is shrouded in uncertainty. While the miss in the September CPI report will have been roundly welcomed by officials, the upside risks to prices from the tariffs means that Powell will likely strike a cautious note on future cuts during his press conference.  

Assuming that the Fed dances to the tune we’re expecting, and does its utmost to keep market waters calm on Wednesday, then we could see an unusually muted reaction in the dollar.

Futures markets are as near as makes no difference fully pricing in 25bp cuts in both October and December, which should limit the fallout in markets.