US | Divided Fed set to proceed with final 2025 rate cut

Summary

While a highly divided vote is likely, we see little upside for the Fed in delivering a surprise pause. A key takeaway will likely be that the room for “risk-management” cuts has run their course and the Fed will pause early next year.

Key points

• Key points:
• Activity seems to remain resilient on strong AI capital spending, though delays in hard data continue to limit full visibility into early Q4 conditions.
• Uncertainty lingers over the extent of downside labor-market risks, as both delayed data and alternative indicators continue to shape the Fed’s assessment.
• No strong signals have emerged (yet?) to warrant renewed caution on the inflation front despite limited price data since the last FOMC meeting.
• Market expectations for a December rate cut increased as recent dovish comments from key Fed officials outweighed October’s cautious tone from Powell.
• We expect a third consecutive rate cut 25bp this week to 3.50-3.75% as concerns over a weakening labor market continue to outweigh inflation risks.

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