Banks Sound Off on Upcoming Fed Meeting Outcome
The US Federal Reserve will hold one of the most highly anticipated policy meetings in recent times this week. Banks share their interest rate forecasts as well as the subsequent impact on financial markets.
On September 16, the Federal Open Markets Committee (FOMC) will convene for their highly anticipated two-day meeting. In addition to the interest rate policy, market watchers will be closely monitoring how FOMC members vote and who will be voting due to ongoing contentions with US President Donald Trump.
«I think you have a big cut,» Trump told reporters on Sunday. «It’s perfect for cutting. We’re doing well and everything – energy is way down, groceries are down, everything, almost everything – is way down.»
Consensus: 25 Basis Points
Markets are widely pricing a 25 basis points (bps) rate cut in the upcoming meeting. Banks across the board agree with the call with Deutsche Bank, OCBC and Standard Chartered also predicting another 50 bps cut by the end of the year.
«Following the weak US jobs data print last Friday, the market has priced in a full 25 bps rate cut and about 10 percent chance of a 50bps cut,» Standard Chartered added in an investment note. «In total, the market is anticipating close to 150 bps in cuts by December 2026.»
Central Bank Independence in Question
The other major issue that is being scrutinized is how the FOMC votes and who will be voting.
Firstly, votes could be divided due to concerns about tariff-related inflation versus a labour market slowdown, coupled with pressure from Trump to ease. On the voting members, Trump nominee Stephen Miran has been approved by the Senate for a Fed position while an appeals court has denied the President’s attempt to remove Lisa Cook.
«A victory for Trump will be seen as a blow to Fed independence and may not be well received by markets. It could even offset some of the positivity from a more dovish Fed and rate cuts by the US central bank,» said a note authored by Vasu Menon, managing director, investment strategy, OCBC.
Market Impact: AI Favored
On market impact, banks are broadly positive on the outcome from the expected rate cut, especially regarding tech investments.
«Without taking any single name views, we continue to believe that investors focused on transformational innovation will outperform broader markets. Recent developments and intact long-term drivers in the areas of artificial intelligence, power and resources, and longevity have reinforced our conviction,» said UBS in a note.
Gold: More Upside
Another popular call is for more gold upside, despite the precious metal already having surged nearly 40 percent year-to-date.
«While the hedging efficacy of duration is still muted, we remain positive on our gold exposure as a hedge to risk-off moves and potential for total return in a reflation regime,» said a Citi Wealth CIO strategy bulletin.
«[W]e think the metal has further room to rally. We now expect bullion to reach $3,900/oz by June next year, up from our previous forecast of $3,700/oz,» UBS added in a separate note.
