The US Federal Reserve reduced its target range by 25 basis points to 4.00-4.25%. The Bank of England cut rates by 25 basis points in August, while the European Central Bank held its deposit rate steady.
Employment data in the US could be a key driver of future monetary policy adjustments. Additionally, a prolonged government shutdown could increase potential volatility and uncertainty.
We expect the Fed to deliver two more rate cuts this year as the macro environment poses much uncertainty, including the labor market which remains a key risk.
The Federal Reserve (Fed) reduced the federal funds target rate range by 25 basis points to 4.00 – 4.25% at its September 17 meeting, in line with market expectations.1 The newly appointed Fed Governor Miran was the lone dissenter and sought a 50 basis point rate cut. Chair Powell characterized the action as a “risk management” cut during the press conference following the release of the Federal Open Market Committee (FOMC) statement.
The FOMC reacted to the unexpected weakness in job growth, as the economy produced just 22,000 jobs in August and downward revisions flipped June’s nonfarm payroll reading to negative.2 However, the consumer price index (CPI) rose 10bps month-over-month in September to 0.40% and 20bps year-over-year to 2.9%.2 Clearly a slowing labor market combined with more persistent inflation creates a difficult situation for the FOMC, but the market has priced in two more 25bps cuts in October and December and two more cuts in 2026.
To further complicate matters, the US government shut down on October 1, which could delay the release of important economic data, including the employment and inflation reports, if the shutdown persists beyond a few days. While we do not believe that a short-term government shutdown would have much impact on the broad economy, any large-scale permanent government job cuts would increase economic uncertainty.
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