All eyes on the Fed
Will they cut rates, and by how much?
By Darren Connor
We’re heading into a pivotal week for USD markets, with the Federal Reserve’s next interest rate decision due Wednesday 17 September. A 25bp cut is now priced in with 99% probability, according to Bloomberg analysts. Some desks are even floating the possibility of a 50bp cut - but that’s where things get interesting.
Why a 50bp cut is unlikely (for now)
The Fed hasn’t cut rates since January, and a sudden 50bp move could risk unsettling markets. While the data may justify it, the Fed’s reputation for measured, data-led decision-making suggests it may avoid a knee-jerk reaction. Instead, the real market mover could be Chair Jerome Powell’s press conference, where investors will be listening closely for signals on the path ahead.
What’s to expect for the rest of the year?
Bloomberg consensus points to 50 to 75 bp cuts before year-end, but with only two FOMC meetings left after this week’s meeting - one in late October and one in mid-December - the Fed may still opt for a larger move later if inflation and growth data continue to soften.
Towards the end of 2024, markets were expecting four rate cuts in 2025. So far, we’ve had just one. That’s left the Fed trailing its peers:
- Bank of England: 3 cuts
- European Central Bank: 4 cuts
But the question isn’t just can the Fed catch up - it’s should they?
Inflation: The Fed’s balancing act
US inflation has been the key reason for holding rates steady. Interestingly, while inflation in the US has been lower than in the UK and EU, the Fed has remained more cautious and arguably more data-led than its European counterparts.
US CPI inflation fell as low as 2.3% in May, while the UK’s rate climbed to 3.5% and the Eurozone reached 2.7%. On Thursday last week, the latest figures were released, with US inflation standing at 2.9% - still notably lower than the UK’s 3.8%.
The latest figures were released last Thursday, 12 September, and showed a slight uptick from 2.7% the previous month, as companies continued to push rising tariff costs onto consumers. However, did not deviate from market expectations.
Politics and Powell: What’s next?
External pressure is mounting. Former President Donald Trump has publicly criticised the Fed’s stance, and with Chair Jerome Powell’s term ending in May 2026, speculation is building around his successor.
Reports suggest the Trump administration is considering 11 candidates, including:
- David Zervos (Jefferies)
- Larry Lindsey (former Fed Governor)
- Rick Rieder (BlackRock CIO)
Treasury Secretary Scott Bessent is said to be leading a ‘deliberative process’ to narrow the field. But with no clear timeline, this adds another layer of uncertainty to the Fed’s long-term direction.
Our take:
This week’s Fed meeting is about more than just the headline rate cut; it’s about the tone, the guidance, and the roadmap for the rest of the year. And while the decision is made in Washington, its impact reaches far beyond US borders.
Even if you’re trading exclusively in pounds or euros, the US dollar still matters. In fact, around 88% of all global currency trades involve USD. So, when the dollar strengthens or weakens - whether due to interest rate shifts or political headlines - it sends ripples across the FX landscape.
The FX markets are deeply interconnected, and US monetary policy can influence your exposure even if you’re not directly trading USD.
Darren is a seasoned currency dealer with deep expertise in private wealth dealing, known for delivering tailored currency solutions to high-net-worth individuals. He began his career with Moneycorp in 2008, where he quickly established himself as a trusted partner to individuals in the foreign exchange and private client space.
In 2012, Darren relocated to Florida to join Moneycorp’s U.S. team, bringing his international experience and client-focused approach to a growing market. Based in Orlando, he continues to work closely with clients to develop personalized strategies for currency risk management, and cross-border money transfers.
Views expressed in this commentary are those of the author, and may differ from your appointed Moneycorp representative. This commentary does not constitute financial advice. All rates are sourced from Bloomberg and forecasts are taken from Forex Factory.
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