Powell leaves 'little doubt' of another cut later this month

Recent developments suggest to us that the strong showing in the US dollar in the past month ought not to have too much room to run.

The issues that led to the ongoing government shutdown appear a long way from being resolved, and markets are now bracing for the possibility that the closure could transpire to be the longest on record (betting market Kalshi is now pointing to a shutdown that lasts 34 days in length).

So far, the market’s view has been that the impasse will only have a small negative effect on the US economy, with any loss in output to be recouped in early 2026. This stance will be tested, however, the longer the shutdown drags on, and we still contest that a longer cessation of government activities is a dollar negative, rather than a dollar positive.

FOMC Chair Powell also struck a dovish note during his remarks yesterday. We think that his comments leave little doubt that another cut is on the way later in the month after he warned that the US economy was mired by low hiring, while the shutdown would not prevent the bank from assessing the economic outlook.

Comments from FOMC members Miran, Waller and Schmid will be watched by market participants today.