On September 16 news, it is that Milan has obtained enough votes through the U.S. Senate nomination vote to confirm that it will become the board of directors of the Federal Reserve. The nomination of the Milan Federal Reserve has been timely confirmed by the Senate and can catch up with this week’s interest rate meeting.
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Preview of the Federal Reserve's decision: Restarting interest rate cuts is imminent, and the split between the voting committee will further intensify? (China Business News)
Whether Powell will release continuous interest rate cut signals.
On September 16, local time, the two-day Fed interest rate meeting was officially held in Washington, D.C.
It is generally expected that the Federal Reserve will resume interest rate cuts as the U.S. job market is sending out warning signals. The future easing path will be more concerned, on the one hand, the Federal Open Market Commission (FOMC) faces huge government pressure, internal dark currents, on the other hand, the impact of Trump's trade policy remains to be clear, and whether data dependency positions will lead to policy adjustment responses to impact the economy in a timely manner.
How the economic outlook changes
Since August, the two main tasks of the Fed – inflation and employment – have continued to be under pressure, while prices have continued to rise, and the job markets have begun to heat down.This “toxic combination” has warmed the risk of stagnation, and has also plunged the Fed into one of the most difficult situations that central banks can face.
Last week's data showed that the U.S. consumer price index (CPI) rose 2.9% year-on-year in August, the highest increase since January this year. After excluding the volatile food and energy categories, the core CPI growth rate was 3.1% year-on-year, significantly higher than the Fed's 2% inflation target.
In the past week, the number of U.S. initial unemployment requests rose to the highest level since 2021, while the number of repeated unemployment requests has remained at the highest since the outbreak, indicating that job seekers have had a delay in finding jobs.
The International Monetary Fund (IMF) said this month that the U.S. economy is now showing signs of pressure after many years of resilience, specifically in terms of slowing domestic demand and slowing job growth. IMF spokeswoman Julie Kozack noted that U.S. inflation is moving towards the Fed's 2% target, but there are still some risks that could push up inflation, which are largely due to the Trump administration's tariffs on imported goods.
The update of the Summary of Economic Forecasts (SEP) will revisit the FOMC's view on the economy and the federal funds rate, given the upside risks that changes in trade policy could pose to unemployment and inflation.Combined with recent data trends, Wall Street expects that the Federal Reserve may slightly lower its economic growth forecast for 2025, believing that downside risks to the economy are increasing. The unemployment rate is expected to be flat or slightly revised upward, and the inflation forecast may fall slightly, because the recent impact of tariffs on price indicators is better than expected.
Wells Fargo wrote in a report to China Business News that the driving factor for this adjustment in interest rate expectations is the superposition of rising risks to full employment and the overall stability of inflation outlook. The bank expects the median interest rate expectation point in 2025 to be lowered from the 50 basis point rate cut forecast in June to a 75 basis point rate cut; The median interest rate expectation point in 2026 will drop to 3.125%, a decrease of 50 basis points, which means an additional 25 basis points of interest rate cuts may be possible next year.
Dansk Bank believes that the updated “point chart” will help determine whether the majority of FOMC members are more inclined to “quarterly rate cuts” or “continuous rate cuts”. by the end of 2026, the policy rate end range will be 3.00–3.25%, a target expected to be reached in September 2026.
According to recent statements, at least the Fed directors Waller and Bauman may be more inclined to adopt a more radical continuous interest rate reduction approach, while regional Fed chairmen Williams (New York Federal Reserve), Cashcarrie (Minneapolis Federal Reserve) and Bostick (Atlanta Federal Reserve) in recent statements are more supportive of a gradual interest rate reduction.
What are the policy prospects
Although U.S. President Trump once again put pressure on the Federal Reserve to take greater action on Monday, the market currently generally believes that the Federal Reserve will announce a 25 basis point interest rate cut on Wednesday, lowering the federal funds rate range to 4.00%-4.25%.
However, differences within the Federal Reserve could again be reflected in the outcome of the vote.Some members are concerned about rising inflation, while others focus on preventing a possible recession.Matt Luzzetti, chief economist of Deutsche Bank, said that this meeting may be the first meeting since 1988 where three governors have raised objections, or it may be the first meeting since September 2019 where there has been "two-way objections" (that is, objections point in two different directions).
Former senior adviser to Powell and current head of global macroeconomics at Northern Trust Asset Management, Antulio Bomfim, said the differences would not be so severe, noting that members of the Federal Reserve could unite to protect the Federal Reserve from attacks on the White House and that external pressure would drive people to gather around the institutions.”
It is worth noting that the pricing of federal funds rate futures shows that when the overall situation of interest rate cuts in September has been set, the expectation of interest rate cuts in October has risen to nearly 80%, and the policy space during the year points to a 75 basis point interest rate cut. China Business News reporter previously reported that Morgan Stanley and Deutsche Bank urgently adjusted their respective forecasts. The two brokerages said in separate reports on Friday that they expect the Fed to cut interest rates by 25 basis points at each of its three meetings in September, October and December. Previously, the two agencies predicted that the Fed would cut interest rates by only 25 basis points in September and December each.
Roosevelt believes Powell will release a signal of “three rate cuts and 25 basis points each year” in September, October and December, respectively. He said the Fed plans to continue cutting interest rates because it hopes to prevent a severe weakness in the job market.
However, market perspectives believe that there is still uncertainty about the Fed’s follow-up policy, which will depend on future trends in inflation and employment data.
Bowen said Powell is likely to remain cautious and refute the markets about the expectation that the Fed will cut interest rates at its next meeting in October, and I don’t think it’s yet to be sure they’ll cut interest rates again in October.Inflation faces significant risks, and the job market hasn’t ‘collapsed’ and there’s no sign of an urgent need to cut interest rates.