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2025-09-16 20:37:42
Hawkish Signal? The Fed's Dot Plot May Fail to Deliver on Easing Expectations. ⑴ The market generally expects the Federal Reserve to initiate an interest rate cut at its September 17th meeting, possibly by 25 basis points. However, attention should be paid to the actions of Stephen Milan, a member of the Federal Reserve appointed by President Trump, who may object to a 50 basis point cut. ⑵ Historical data shows that the Federal Reserve Board tends to adopt more accommodative monetary policy to proactively respond to economic weakness, as evidenced by Chairman Powell's recent hints of a rate cut, even if inflation targets are missed. ⑶ When inflation is modestly below target and the labor market weakens significantly, the Fed tends to view the inflation target miss as the "lesser of two evils." ⑷ Against this backdrop, the market has priced in relatively aggressive easing expectations, with interest rates projected to be below the neutral level of 3% by the end of 2026. ⑸ However, the potential risk is that if the Fed's actual dovish dot plot fails to support market expectations, it could lead to an actual tightening of financial conditions, putting pressure on stocks and US Treasuries. ⑹ This could then create an opportunity for the US dollar to strengthen.
