FED: Analysts' "On Hold" Rate Calls For 2025 Evaporate Post-Jackson Hole (1/2)
Aug-27 14:33
In the wake of Chair Powell's Jackson Hole Speech, multiple analysts abandoned their calls for the Fed to stay on hold through the rest of the year. The ranks of those who still see no cuts this year is now very small, with just 2 that we are aware of - see below.
- Morgan Stanley had previously seen rates steady through March 2026 - but now sees 25bp cuts quarterly starting in September through end-2026 (150bp total) to 2.75-3.00%). "We make the change on account of the shift in tone at Jackson Hole, where Powell revealed more concern about downside risk to labor markets. A September cut is not a certainty. Payrolls of 225k in August and another clear acceleration in tariff-related inflation could keep them on hold."
- BNP Paribas analysts abandoned their "on-hold" call for the Fed, and now pencil in 25bp cuts in September and December. Noting that "labor market data over the next few months will take on significantly more weight than the inflation figures," BNP writes that "Chair Powell’s speech... made clear that the Fed intends to deliver a "fine-tuning" rate cut at the September FOMC meeting unless the data dictates otherwise. Although we think that a September cut is not quite a done deal, the bar now seems sufficiently high for the data to surprise positively that we shift our longstanding on-hold call for the Fed to a base case for 25bp rate cuts at both the September and December meetings...September may end up being the only rate cut for the year. But we will need to wait for the data to tell us that."
- Scotiabank now sees cuts in 2025, vs their previous view that easing would start only in 2026: "[Powell's] sudden turn left a strong sense of capitulation oriented toward shifting the stance to avert the nasty optics of an all-out rebellion on a soon-to-be stacked Board. We’re now in totally uncharted territory on the Fed in my view... fifty points of easing by year-end is a minimum expectation and I’d lean toward expecting 75bps of cuts in a trio of back-to-back moves into year-end and another cut in early 2026 after which we’ll see as data and developments are digested along the way."
- Berenberg was also in the 2025 "on hold" camp since the start of the year, but now expects 25bp cuts in September and October. "That said, a September rate cut is still not a done deal. A lot depends on the August inflation and employment reports...If the Fed does lower interest rates as we now predict, strengthening inflationary pressure while the labour market remains roughly in balance should still ensure that it will keep interest rates on hold from its December meeting onwards."
- NatWest now sees 25bp cuts in September and December (previously saw no cuts in 2025), as we covered in a previous note.
- As for the holdouts: BofA still sees no cuts through year-end, but said post-Jackson Hole that "the risks have obviously shifted meaningfully toward a cut" in September..."The onus is firmly on the data to prevent a cut." ABNAmro likewise maintained its call for no cuts "We will update our Fed view when all relevant data is available."
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CANADA: PM Carney-Talks w/US "At An Intense Phase", Deal w/o Tariffs "Unlikely"
Jul-28 14:27
Speaking in Prince Edward Island, PM Mark Carney says that trade talks with the US "are at an intense phase". Says that "any trade deal with the US must be on fair terms for Canada." Adds that a trade deal with the US "without any tariffs is not likely." Carney: "That said, there's a question as to how large those tariffs would be."
- Asked about US President Donald Trump's comments about the difficulty of negotiating a deal with Canada, Carney says, "Yes, we are difficult, but we are fighting for Canada."
- Says that US comments regarding Canada not being a priority in trade talks are "part of the negotiation."
- Former White House official Larry Haas, speaking to CTV on 27 July, said that the gov't in Ottawa needs to remain robust, “Canada needs to make clear to the United States that it’s not going to take just any deal.”
- With Canada risking an escalation in tariffs to 35% from 1 August, reaching a deal in the coming days will be of the highest priority for the Carney gov't, despite efforts to downplay the risks to Canadian growth from such high levies.
FOREX: USD Bid Extends
Jul-28 14:18
No clear, fresh fundamental driver for the latest extension higher in the USD, with gold lower and S&P 500 e-minis closing the Asia-Pac opening gap higher. Meanwhile, benchmark European equity indices remain under pressure.
- U.S. President Trump has reiterated his ability to implement tariffs, earmarking a 15-20% “world tariff” range (in line with levels levied in recent negotiations), while shortening the deadline for Russia to agree a ceasefire truce with Ukraine (to 10-12 days from now).
- Elsewhere, there hasn’t been much in the way of negatives surrounding the Sino-U.S. trade meeting in Stockholm, although that only got underway this afternoon.
- On net, it looks like the watering down of some of the recent headwinds for the USD, along with Trump’s softening tone when it comes to the immediate future of Fed Chair Powell, is allowing some of the USD negativity unwind.
- Still, the broader USD (BBDXY) only trades back to levels that were registered last Monday.
- EUR/USD remains under the most pressure despite the U.S.-EU trade agreement, with the deal still deemed punitive enough to harm to EU, despite the avoidance of the worst-case scenario.
- EUR/USD registers lows of 1.1626, still some way above next support at the 50-day EMA (1.1559). a break there would pose a bigger threat to the bullish case in the pair.
FOREX: USD Bid Extends
Jul-28 14:17
No clear, fresh fundamental driver for the latest extension higher in the USD, with gold lower and S&P 500 e-minis closing the Asia-Pac opening gap higher. Meanwhile, benchmark European equity indices remain under pressure.
- U.S. President Trump has reiterated his ability to implement tariffs, earmarking a 15-20% “world tariff” range (in line with levels levied in recent negotiations), while shortening the deadline for Russia to agree a ceasefire truce with Ukraine (to 10-12 days from now).
- Elsewhere, there hasn’t been much in the way of negatives surrounding the Sino-U.S. trade meeting in Stockholm, although that only got underway this afternoon.
- On net, it looks like the watering down of some of the recent headwinds for the USD, along with Trump’s softening tone when it comes to the immediate future of Fed Chair Powell, is allowing some of the USD negativity unwind.
- Still, the broader USD (BBDXY) only trades back to levels that were registered last Monday.
- EUR/USD remains under the most pressure despite the U.S.-EU trade agreement, with the deal still deemed punitive enough to harm to EU, despite the avoidance of the worst-case scenario.
- EUR/USD registers lows of 1.1626, still some way above next support at the 50-day EMA (1.1559). a break there would pose a bigger threat to the bullish case in the pair.
