Powell to 'strike dovish note' ahead of 'near certain' 25bp cut
We see a 25 basis point cut from the Fed as a near certainty on Wednesday.
The latest batch of data out of the US jobs market has been a dud, plain and simple, effectively extinguishing any last traces of doubt over a September move. While we expect two or three of the doves to dissent in favour of a 50bp cut, we think that most of the committee will opt for a smaller rate adjustment for risk of stoking inflation expectations and spooking the Treasury market.
Chair Powell appears set to strike a dovish note. He will likely no longer describe the jobs market as “solid”, while reiterating that any tariff-induced spike in inflation will probably be temporary.
The “dot plot” will also be shaved lower, with the median dots to possibly show three cuts this year and a couple more in 2026. This would partly, but not fully, close the gap between the Fed’s interest rate expectations and that held by the market.
Author
Matthew Ryan, CFA
Ebury
Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.
