Intel closes 23% higher after Nvidia takes $5B stake
Traders and economists confidently expect the Fed to cut interest rates to the 4.00-4.25% range.
While there is no doubt that the FOMC will deliver an interest rate cut, the median FOMC member may not (immediately) endorse the aggressive rate cut path expected by the market.
From a technical perspective, the US Dollar Index (DXY) has broken down to a 10-week low below 97.00, clearing the way for a test of July’s 3.5-year low at 96.40 if the Fed delivers a “dovish cut.”
When is the FOMC Meeting?
The September 2025 FOMC meeting will conclude today at 2:00 ET.
Fed Chairman Powell’s press conference will begin at 2:30 ET.
What are the FOMC Interest Rate Expectations?
Traders and economists confidently expect the Fed to cut interest rates to the 4.00-4.25% range.
As of writing, Fed Funds futures traders are pricing in 96% odds of a 25bps interest rate cut per CME FedWatch (with an outside chance of a 50bps “double” rate cut):
Source: CME FedWatch
Assuming the Federal Reserve cuts interest rates by 25bps as expected, the market’s focus will immediately shift to the central bank’s Monetary Policy Statement, Summary of Economic Projections, and Fed Chairman Powell’s Press Conference for potential market-moving changes.
FOMC Meeting Forecast
Despite relentless political pressure from President Donald Trump, Fed Chairman Jerome Powell and Company left interest rates unchanged in the 4.25-4.50% range in July, but that was before several weak jobs reports and big negative revisions to previous jobs readings that imply the labor market is weaker than assumed the last time that the FOMC met.
Many Fed members remain apprehensive about the potential inflationary impact of the US’s aggressive new tariff policy. Still, given the clear slowdown in the jobs market, traders expect the central bank to cut interest rates three times over the course of the year per the CME’s FedWatch tool:
Source: CME FedWatch
While there is essentially no doubt that the FOMC will deliver an interest rate cut this week, the median FOMC member may not (immediately) endorse such an aggressive rate cut path. After all, the most recent Summary of Economic Projections forecasted 2025 GDP at 1.4%, the unemployment rate at 4.5%, and Core PCE at 3.1% by the end of 2025, and all those projections appear relatively accurate.
Against that backdrop, only 2 (of 19) officials anticipated three 25bps rate cuts this year back in June. Some will undoubtedly shift toward a more dovish rate path, but getting a majority (10) of Fed officials on board for three rate cuts this year may be a bridge too far, at least at this stage. Expect forecasts of more easing in 2026, which may be read as less dovish than the market’s aggressive near-term expectations (for now).
Regardless of where the economic forecasts come in, more dissension in the ranks is likely. Last month’s meeting made history as the first double dissent from Fed governors since 1993 (previous dissents were by rotating regional Fed presidents). We’ll likely see at least some of the more dovish members (Waller, Bowman, the newly appointed Stephen Miran) dissent in favor of an immediate 50bps rate cut, setting the stage for a contentious fourth quarter of the year at the Fed.
Beyond the focus on traditional economic data, the proverbial elephant in the corner of the room remains President Trump’s relentless pressure on Chairman Powell and the FOMC to cut interest rates to support the economy. His efforts to influence the central bank through direct comments about Chairman Powell, appointing Stephen Miran, and having Dr. Lisa Cook removed from the FOMC have seen mixed success so far.
I would expect Powell to avoid any confrontation, instead deferring to the central bank’s dual mandate as he looks to preserve his legacy by delivering a “soft landing” for the economy and leaving inflation as close as possible to the central bank’s 2% target.
US Dollar Technical Analysis – US Dollar Index (DXY) Daily Chart
Source: StoneX, TradingView
From a technical perspective, the US Dollar Index (DXY) has broken down to a 10-week low below 97.00, clearing the way for a test of July’s 3.5-year low at 96.40 if the Fed delivers a “dovish cut.” From a bigger picture view, the greenback remains in a prolonged downtrend as traders continue to price in aggressive easing from the US central bank over the next year or two while other central banks are slowing their interest rate cuts.
As long as that remains the case, traders will likely remain keen to sell any near-term rallies in the buck, though a less-dovish-than-expected cut could still lead to a bounce back above the key 97.15 level. Only a confirmed break above the August highs in the 98.90-99.00 zone would erase the bearish bias at this point.