Global markets tonight are fully focused on the outcome of the Federal Open Market Committee (FOMC) meeting. After weeks of speculation, most analysts believe the Federal Reserve will cut its benchmark rate by 25 basis points. This move is expected to signal the start of an easing cycle amid signs of a cooling labor market, even though inflation remains above target.
Beyond the rate decision, markets will also be watching the release of the Fed’s updated economic projections (dot plot and SEP). These projections provide a roadmap of how many additional cuts could take place through the end of 2025 and offer hints on the 2026 policy outlook. If the Fed signals more cuts ahead, risk assets such as equities and emerging-market currencies could see strong inflows.
Equally important will be Jerome Powell’s tone during the press conference. Investors will be keen to gauge whether the Fed chair remains cautious due to lingering inflation risks or shifts focus toward slowing growth and labor market weakness that may require more stimulus. This is where the surprise factor lies: the Fed could sound more hawkish than expected—or more dovish by opening the door to further rate cuts.
Markets will also monitor any signs of dissent within the committee. A split in votes would highlight the tension between policymakers worried about inflation and those advocating for stronger economic support.
With mixed economic signals—solid retail sales and industrial production on one side, weakening labor data on the other—tonight’s FOMC decision will be a key driver for markets through year-end. Regardless of the outcome, volatility is all but guaranteed, especially in U.S. Treasuries, the U.S. dollar, and global risk assets.
Market Snapshot Before the Decision
- Gold has surged to new highs, supported by expectations of a Fed rate cut, a weaker dollar, and lower U.S. bond yields.
- FX markets show USD depreciation against major peers, as traders have largely priced in a 25 bps cut.
- However, caution is creeping in: if expectations are overly optimistic, or if the FOMC holds back on signaling more cuts after September, a “sell the fact” reaction could emerge.
Possible Scenarios Tonight
| Instrument | Positive / Dovish Scenario | Negative / Hawkish Scenario |
|---|---|---|
| Gold (XAU/USD) | • Could extend gains toward $3,700–3,750/oz if a 25 bps cut is paired with guidance for further easing. • Technical support remains strong if yields fall and USD weakens. • Safe haven demand could increase on unexpected economic/geopolitical risks. | • A cautious Fed stance, signaling data-dependent cuts, could trigger corrections toward $3,600–3,650. • USD rebound could weigh on gold. • Profit-taking is possible after sharp recent gains. |
| FX Markets | • USD likely to weaken further, especially against EUR, JPY, and EM currencies, if the Fed cuts and sounds dovish. • EM currencies—particularly commodity exporters—may strengthen on capital inflows. • EUR/USD and GBP/USD could climb; USD/JPY may fall if U.S. yields drop and safe-haven flows rise. | • If the Fed cuts but signals very limited room for further easing, USD could rebound as a safe haven or on higher U.S. yields. • EM currencies face downside risks if investors fear stronger global growth will keep rates elevated. • Volatility in USD pairs could spike; any dip in USD may reverse quickly if Powell’s comments disappoint. |
Key Drivers to Watch
- Powell’s communication and the new dot plot: Rate cuts alone aren’t enough—the market wants clarity on whether this is a one-off move or the start of a series. Multiple cuts in the dot plot would strengthen the dovish case.
- Incoming economic data: Inflation (CPI, core CPI), labor market, and manufacturing/services activity will heavily shape future Fed policy. Strong data could limit room for more cuts.
- U.S. bond yields and real rate expectations: Lower short-term yields, coupled with steady or declining inflation, would support gold.
- U.S. dollar strength: USD performance will be a key barometer for FX movements.
Bottom line: Markets are leaning toward a 25 bps cut, and much of the reaction is already priced in. The biggest surprise would come if the Fed doesn’t cut—or if Powell delivers much more cautious guidance than markets anticipate.
Disclaimer ON
Ade Yunus
Global Market Strategies