United States: Central Bank decreases rates in September
Latest bank decision: At its meeting on 17 September, the Central Bank decided to lower the target range for the federal funds rate by 25 basis points to 4.00%–4.25%. This marked the first rate cut since last December.
Softening labor market drives cut: The key domestic factors driving the cut were weakening job growth and rising unemployment in recent months, together with only a muted inflation passthrough to date from higher tariffs.
More cuts to come: The Central Bank’s forward guidance suggests 50 basis points of extra cuts later this year followed by 25 basis points of cuts in 2026.
Panelist insight: Commenting on their revised forecasts, Nomura analysts said:
“We have revised our forecast and now expect two additional cuts this year (we had previously forecast a pause in October and a cut in December). Less emphasis on inflation risks and a likely shift in Fed leadership next year leads us to forecast three additional cuts in 2026 in March, June, and September. We had previously expected the easing cycle to end after March.”
United Overseas Bank’s Alvin Liew said:
“The resumption of easing in the Sep FOMC meeting and the revision to the Sep Dotplot are aligned with our long-held view of three 25-bps rate cuts in 2025. Post-Sep FOMC rate cut, we continue to project two more 25-bps rate cuts in the remaining FOMC meetings this year, one each in Oct and Dec, primarily due to downside risks to growth and employment. This will bring the Fed Funds Target rate (FFTR) to 3.75% (upper bound of FFTR) by end-2025. We are also keeping our view for the two rate cuts for 2026, implying a terminal FFTR of 3.25% in 2026.”