Publications

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.

The economy continues to perform well. Domestic demand accelerated in the third quarter, driven by private spending. This positive momentum and pension funds withdrawals point to output growth reaching 3,3 % in 2025. A slight moderation is expected in 2026 amid electoral uncertainty, GDP growth easing to 3,1 %.

We enter a new data-dependent phase in which the Board monitors core inflation before signaling it may lower the ex-ante real policy rate close to the 2.7% midpoint of its estimated neutral range.

We think the room to continue easing is unlikely to have been materially affected by the Fed’s more cautious tone from last week, as some Board members have indicated that a narrowing rate spread is not a binding constraint.

We expect most FOMC participants to conclude that downside risks to the labor market remain firmly in place and to support a second consecutive rate cut this week.

Treasury yields fell over the past month as futures almost fully price in a second straight rate cut next week, after Powell warned last week that the labor market may now be at a stage where “further declines in job openings might very well show up in unemployment.”

Last week, the Fed resumed its rate-cutting cycle with a 25bp reduction, its first move this year, citing a shift in the balance of risks amid weaker labor market data. It signaled more cuts ahead, with the median year-end rate projection falling after three steady meetings.