United States: Central Bank decreases rates in September
Latest bank decision: At its meeting ending on 18 September, the Federal Reserve decided to lower the target range for the federal funds rate by 0.5 percentage points to 4.75–5.00%, marking the first rate cut since early 2020.
Monetary policy drivers: The key domestic factors influencing the Central Bank’s decision were the recent drop-off in headline inflation and weaker-than-expected jobs growth, which provided the leeway for looser monetary policy.
Significant further cuts are on the cards: In its own projections, the Fed expected the target range for the funds rate to end this year at 4.25–4.50% and 2025 at 3.25–3.50%. However, much will depend on the future evolution of price pressures and the labor market: Continued weaker-than-expected employment and inflation could encourage deeper cuts.
Panelist insight: On the near-term outlook, Nomura analysts said:
“We continue to expect 25bp cuts in November and December, but [September]’s decision raises risks of a more dovish path. Actions speak louder than words; despite messaging that today was a one-off move, the Fed has signaled a high sensitivity to labor-market weakness.”
Goldman Sachs analysts said:
“We see the choice between a 25bp and 50bp cut in November as a close call. The deciding factor will likely be the next two employment reports, the second of which will come during the blackout period, and in particular the path of the unemployment rate.”