US Interest Rate Prep

On Wednesday, the 17th of September at 14:00 ET, the FOMC concludes its latest meeting, and announces the latest US interest rate decision, as well as releases the latest Summary of Economic Projections and rate statement.
Here are some views on what to expect.

Overview
Markets and analysts are widely expecting the Fed to cut rates 25 bps to 4.25% at this upcoming meeting, marking the first rate cut this year, and the resumption of the cutting cycle, which paused last year.

If realised, attention will turn to the Rate Statement, and more importantly, the Summary of Economic Projections (SEP).

General Expectations
While specific September SEP figures are forthcoming, a summary of past shifts suggests participants are gradually shifting projections toward less aggressive easing—likely reducing expected rate cuts over the medium term while maintaining elevated outlooks for inflation.
This shift is due to persistent inflation pressures and economic resilience.

US Stocks
A 25 bp cut may provide a short-lived boost to equities, particularly growth and rate-sensitive sectors, but may also invite a “sell-the-news” reaction due to stretched valuations. JPMorgan has signaled caution here.
A 50 bp surprise cut could catalyze a stronger rally in cyclical and interest-sensitive sectors, although inflation concerns may temper enthusiasm.
An SEP that implies steeper rate reductions than rate futures currently price in could be the catalyst needed for more medium-term strength in US stocks, though the implications of fewer rate cuts could act as a headwind.

US Dollar
A 25 bp cut may weaken the USD modestly, aligning with a dovish monetary shift.
A 50 bp cut would likely dampen the dollar further, boosting demand for gold and other havens.
An SEP that implies steeper rate reductions than rate futures currently price in could cause more medium-term weakness in the dollar, though the implications of fewer rate cuts could act as a tailwind.

Government Bonds
Yields likely fall under both scenarios, particularly if the market sees an aggressive cut or dovish SEP projections—boosting bonds in anticipation of prolonged accommodation.

Federal Reserve Policy Outlook (SEP Influence)
A 25 bp cut with modest SEP adjustments could indicate the start of gradual easing, preserving optionality for later developments.
A more aggressive cut, accompanied by downshifts in SEP rate path assumptions, may pivot the Fed firmly into easing territory and significantly alter expectations for 2026 rate trajectory.

Commentary
Wells Fargo
The FOMC held rates steady at its July 30 meeting for the fifth straight time, with dissents from Governors Waller and Bowman, who favored a cut, underscoring concerns about the labor market. Inflation remains elevated, with tariff-driven goods reflation and slower services disinflation keeping core PCE inflation about one percentage point above target. We expect the Fed to resume easing in September, lowering the funds rate to 4.00%-4.25%, consistent with earlier projections. Our forecast anticipates core PCE rising 3.1% on a Q4/Q4 basis in 2025.

Labor market weakness has intensified since July, with payroll growth averaging just 29K over the past three months and unemployment rising to 4.3%, the highest in this cycle. This backdrop has boosted support for cuts, including from Chair Powell. We expect the September SEP to turn more dovish, with the median dot showing 75 bps of cuts in 2025 and a lower 2026 rate path. The statement will likely acknowledge weaker labor conditions but avoid committing to immediate follow-on cuts, leaving flexibility for future moves. Our base case sees three 25 bp cuts this year (including September) and two more by mid-2026, before holding at 3.00%-3.25%.

Unicredit
The Fed is expected to cut rates by 25bp at its 17 September meeting, with markets fully pricing in the move and assigning only a small chance of a larger 50bp cut. Powell’s Jackson Hole speech flagged growing downside risks to the labor market, a view reinforced by weak August payrolls and a BLS benchmark revision showing 911k fewer jobs through March.

However, a 50bp cut appears unlikely given that unemployment remains just 0.1pp above the Fed’s equilibrium estimate, core inflation is running closer to 3% than 2% and could rise further with tariffs, and business surveys have shown improvement. We expect only limited further easing, with an additional cut in December and one more in June next year.

Societe Generale
US labor market data have weakened significantly since the Fed’s last meeting, with non-farm payrolls nearly stalling over the past four months and preliminary benchmark revisions pointing to a record downward adjustment. The balance of risks has shifted sharply toward the labor side of the Fed’s dual mandate, outweighing inflation concerns.

Against this backdrop, we expect a 50bp rate cut, a well out-of-consensus call, reflecting the need for forceful action after a prolonged period of moderately restrictive policy. Meanwhile, August retail sales likely rose modestly, driven mainly by higher prices.

Previous Release
At the Fed’s last meeting, on July 30th, they kept rates unchanged as expected at 4.5%.

In the press conference following the meeting, Fed’s Powell noted that they had not made a decision for the September meeting at that time.

This was a far cry from the forward guidance that the markets were looking for, and caused markets to reduce their bets on future Fed rate cuts, causing strength in the dollar and government bond yields, and weakness in the US indices.