"Now the doves are in charge": what Wall Street is saying about the Fed's decision to cut rates

Wall Street analysts regarded the Fed's decision to cut interest rates as confirmation of the regulator's new "dovish" course: most experts forecast two more cuts in 2025 and new steps in 2026. Some experts noted that the regulator is now more concerned about the slowdown in economic growth than inflation, and demonstrates a desire for unity. Some, on the contrary, pointed to hidden disagreements of the FOMC members.

The rate cut and accompanying Fed statement support the dovish outlook, noted G-10 currency strategist at BI Audrey Child-Freeman. "We expect two more rate cuts this year and new ones in 2026, which supports our forecast for the euro/dollar pair at $1.2," the analyst added in a Bloomberg statement.

"The Fed is likely to cut rates by another 25 bps in October and December, on top of today's cut. Most FOMC (Federal Open Market Committee. - Oninvest) members are now targeting two more cuts this year. This means that the "doves" on the committee are now at the helm. For the Fed to change the current easing trajectory, it would require a significant upside surprise in inflation or a sharp recovery in the labor market," Simon Dangour, head of fixed income macro strategy at Goldman Sachs, said in a Reuters story.

Gregory Faranello of AmeriVet Securities believes that the Fed is now more concerned about slowing economic growth than inflation: the regulator is ready to continue cutting rates even if the rate of price growth remains above the 2% target. According to Faranello, the lack of new divisions in the vote (only one vote against a 25 bp cut. - and in favor of a 50bp cut) shows the greater unity of the FOMC members, and the chosen course looks stable and consistent movement towards a neutral rate level.

Ali Jaffery of CIBC Capital Markets disagrees: he says there is more disagreement within the committee than today's vote reflects. "The committee is likely divided in its assessment of the US economy, with some favoring faster easing due to risks to the labor market (and perhaps other reasons), while others are clearly concerned about the threat of stagflation. Therefore, the pace of rate cuts remains far from aggressive. Powell faces a difficult task - to speak on behalf of the entire committee", - emphasized the analyst.

Peter Cardillo, chief market economist at Spartan Capital Securities, added that the Fed's statement is dovish in nature. He said a dot plot showing expectations for future interest rates indicates three rate cuts in 2025 totaling 75 bps. However, this trajectory could change if the labor market weakens further. In addition, inflation expectations have risen slightly, but there are no major shifts. "The market likes it," Cardillo stated.

Brian Jacobsen, chief economist at Annex Wealth Management, said the Fed's decision was in line with expectations, while Donald Trump's FOMC appointee Stephen Miran had favored sharper easing. Jacobsen said the main shift in the new projections is from two rate cuts scheduled in June to three by the end of this year. "Overall economic growth has been stronger than expected, inflation is a little softer than feared, and the labor market is slowing faster than anticipated. Overall, it doesn't look like a panic, nor should it," the economist summarized.

Following a two-day meeting on September 16-17, the FOMC lowered the key rate by 25 bps - for the first time in 2025. It now stands at 4-4.25%, which fully coincided with the expectations of market participants and economists. As follows from the so-called dot plot published by the Fed, the regulator expects to reduce the rate by another 50 bps this year. In 2026, it expects a 25 bp cut.

At the same time, the FOMC noted that uncertainty about the prospects of the economy remains high. The regulator for the first time this year refused to characterize the state of the labor market as "stable" (solid), which is quite a significant change in the assessment of the Fed, noted Bloomberg. During a press conference following the committee meeting, Fed Chairman Jerome Powell reiterated: the latest data suggest that the labor market is no longer sustainable. He added that he remains "strictly committed" to supporting maximum employment and returning inflation to the 2% target.

This article was AI-translated and verified by a human editor