Weekly focus: Central banks on a relatively steady course

The September round of central bank meetings is nearing its end with perhaps a surprising sense of stability in financial markets. Despite the blurry outlook, mixed data signals and political pressure in the US, the rate decisions did not cause major volatility in broader financial conditions. That said, US bond yields have edged higher towards the end of the week, and broad USD has recovered despite the policy rate cut from the Fed.

The Fed's 25bp rate cut was backed by almost unanimous support from the FOMC voters. Only Stephen Miran, whose nomination the Senate confirmed at the last minute on Monday, voted for a larger 50bp move. In addition, the dot plot revealed that one non-voter would have preferred to maintain rates unchanged through the rest of the year.

The rate projections revealed greater dispersion in views towards the final two meetings of the year. 9 out of 19 participants predicted only one more rate cut before year-end, or none at all. The exact same number of participants favoured cutting rates at both of the two remaining meetings. Powell emphasized that the rate cut was motivated by a shift in the balance of risks towards weaker labour markets, rather than deterioration of the baseline outlook. In fact, median forecasts for both growth and inflation were revised up for 2026.

We made no changes to our previous call and still forecast only one additional cut this year at the December meeting, followed by three more cuts in 2026. Our forecast profile is aligned with the more hawkish camp of Fed participants, and above market pricing for the rest of the year, read more from our Fed review - Slim margins, 17 September.

Norges Bank delivered a mixed package, as it cut the policy rate by 25bp in line with our call, but paired the cut with hawkish forward guidance. We expect NB to stay on hold for the rest of the year and deliver four more cuts in 2026. Both Bank of England and Bank of Japan kept rates unchanged, as widely expected, but the latter decision came with a hawkish tilt. BoJ announced a gradual reduction of its ETF and REIT holdings, and two members dissented in favour of a hike, which is now almost fully priced in by January.

Next week, the string of rate decisions concludes with Riksbank and the Swiss National Bank, both of which we expect to keep rates unchanged. Riksbank will likely signal an easing bias for coming months, and we forecast one more 25bp rate cut in November.

Focus will increasingly turn back towards macro data, which remains divided. US retail sales surprised positively in August (control group +0.7% m/m SA), as especially online sales held up ahead of expected tariff-driven price hikes. On the other hand, growth disappointed in China across both retail sales and industrial production. Even so, we expect China's Loan Prime Rates to remain unchanged on Monday, as the 1-week reverse repo rate (which is used to signal policy changes) has remained unchanged since May.

The most interesting data release of the week will be the September flash PMIs, which are due for release on Tuesday for euro area, the UK and the US. We expect to see gradual continuing improvement in the manufacturing indices whilst services activity growth has likely softened modestly from August.

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