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The Fed's "first show" of interest rate cuts is expected to be implemented tonight!
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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange]: The Fed's "first show" of interest rate cuts is expected to be implemented tonight!". Hope it will be helpful to you! The original content is as follows:
On Wednesday (September 17), the US dollar index rebounded by 0.18% during the European session, and is currently trading at 96.79, while the US dollar index fell by 0.74% yesterday. By observing the data and the feedback from the Federal Reserve, we divided the trend of the US dollar index in the past two months into three parts, and analyzed the current position and significance of the US dollar index, and at the same time made an outlook on the future US dollar trend.
The US dollar index trend three stages (event + fermentation)
The first stage is that the United States imposes taxes on various countries and impacts many currencies. On July 28, local time, French Prime Minister François Bellu said the agreement was "a dark day in Europe. In conjunction with Fed Chairman Jerome Powell, he said that he had no preference for discussing interest rate cuts in September meetings, and the US dollar index rose to around 99.98.
After July 30, as the US PCE data exceeded expectations, it supported the Federal Reserve to keep interest rates unchanged and the US dollar closed above 100.00. But at this time, Trump and Becent had clearly expressed their support for the weak dollar and Trump had begun nominations. The second phase of the US non-farm employment data in July fell sharply than expected (only 73,000 new people, far below the market expectations of 110,000), and the May and June data were significantly revised downward (total reduction of 258,000), triggering market concerns about the risk of the US recession, the US dollar index plunged 1.39%, which marked the end of the strong dollar trend around 100 in the first phase and started the second phase.
The third phase of the Fed's interest rate resolution attitude, Powell attended the Jackson Hall Global Central Bank Annual Meeting on August 22, and said that although the labor market was stable, it was actuallyFace downside risks. Secondly, he judged that the impact of tariffs on inflation was one-time rather than persistent pressure. Powell pointed out that "because the policy is already in a restrictive range, changes in baseline outlook and risk balance may require us to adjust our policy position." The US dollar index then fell 0.95% to 97.71.
At the same time, on September 9, the U.S. Labor Bureau on September 9, local time, preliminary results of the annual benchmark revision released by the U.S. Bureau of Labor Statistics (BLS) showed that as of the 12 months of March this year, the number of new non-farm jobs in the United States was 911,000 fewer than the previous estimate, equivalent to an average of 76,000 fewer per month.
This means that there is a significant "overestimation" in previous employment growth, and the actual expansion rate is much lower than the initial statistics. The reasons for the Fed's policy shift were further verified. At the same time, on September 12, the CPI data met expectations, dispelling the Federal Reserve's concerns about interest rate cuts that may trigger inflation. The US dollar index did not perform significantly on the same day.
Current situation:
The market generally expects that the Federal Reserve will cut interest rates for the first time in 2025 this week, but for investors, the more core question is: When the central bank needs to cope with the weak employment market, sticky inflation and the pressure of the White House's continued increase in investment, how many windows will be opened in the future?
The key clues will xm-forex.come from the Fed's "dot map" - this quarterly updated chart will clearly present every Federal Reserve official's prediction of the direction of the central bank's benchmark interest rate. The Fed official group has formed a consensus that "two rate cuts this year" and even many people support three rate cuts. The market expects the first rate cut to be implemented on Wednesday, with most Fed observers predicting the rate cut of 25 basis points, which will be the first time the central bank has launched a monetary policy easing cycle since December last year. The US dollar index fell 0.74% yesterday (September 16).
The Federal Reserve will hold two interest rate meetings this year at the end of October and early December. For most of 2025, the Federal Reserve maintained the benchmark interest rate in the range of 4.25%-4.5%, which has exhausted President Trump's patience.
Before this week's meeting, Trump has appointed White House economic adviser Stephen Milan as Fed; and on Monday, the federal court rejected his appeal to remove current Fed director Lisa Cook. Trump has always criticized Fed Chairman Jerome Powell for failing to initiate a rate cut as soon as possible, and has repeatedly called it a "TooLate".
Former Cleveland Fed Chairman Loreta Mister said she “don’t think” that a single or multiple rate cuts can relieve the pressure on the Fed.
She pointed out: "The president made it clear that he hoped that people from his own camp would occupy a majority in the Fed's Council and push for a sharp decline in interest rates. He did not seem to pay attention to the core principles of monetary policy to maintain independence and deviate from short-term political considerations." But Mister predicted that the Fed cut interest rates for the first time this week as policymakers need to balance the dual mission of "maintaining price stability" and "achieving full employment."The amplitude will not exceed 25 basis points.
Mister said that a slight interest rate cut "will reduce the degree of restriction of the policy, but the policy will still be in a restrictive range - not only putting downward pressure on the price stability target, but also providing a necessary buffer for the employment market." At the same time, Mister believes that after the rate cut this week, the pace of continuous rate cuts will not be immediately started.
She emphasized: "Policy makers will stick to the data and make timely decisions at the meetings, striving to maintain policy balance. To promote inflation to fall, certain restrictions on policies need to be maintained; if the employment market conditions deteriorate substantially, they may turn to easing policies, but this node has not yet been reached."
The US dollar index tends to reflect expectations of 2-3 interest rate cuts this year
Wall Street traders bet that the Federal Reserve will continue to cut interest rates at the rate meeting in October and December, and then enter a suspension cycle until April of the following year. Some institutions are more radical: Morgan Stanley economists said last week that the Federal Reserve is expected to continue to cut interest rates at each interest rate meeting until January of the following year, when the target interest rate range will drop to 3.5%.
Luke Tilley, chief economist at Wilmington Trust, said that given the Fed needs to balance weak job growth and inflation, there is a high probability that it will not make clear xm-forex.commitments on future interest rate cuts this week. But he predicted that due to the weak job market, the Federal Reserve will implement a rate cut in the next three interest rate meetings (three in total).
In fact, Tilley made it clear that the Federal Reserve is expected to start six consecutive interest rate cuts - three times before the end of this year and three times after the beginning of next year, and finally lower the policy interest rate to the range of 2.75%-3% to approach the so-called "neutral level" (i.e., interest rate levels that neither stimulate nor inhibit economic growth).
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