FED: Philly's Paulson: 2026 "Long Way Off" In Rate Views
Asked in Q&A if she's in line with the Dot Plot median for 3.4% rates at end-2026 (when she is an FOMC voter) as well as her stated view that she agrees with the FOMC median estimate for 2 more cuts the rest of this year, Philly Fed's Paulson doesn't reveal much, saying "I think next year we're going to have to really evaluate the data as it comes in. We're going to have to see what happens, both with inflation and with employment and with growth. Right? I mean, I think next year is is a long way off right now."
- On where she sees the neutral rate: "We're really going to have to feel our way."
- Asked if she saw potential for rate hikes in 2026 if inflation proves to be stickier than anticipated (always a tricky question), Paulson says: "I mean, I think you can never say never about that. If inflation shows a burst of, you know, shows some life, then the Fed's going to have to react appropriately, whether that's keeping the policy rate at current levels or whether that's increasing, it is going to depend on what the data say. But I think we we need to be open to doing what it takes to achieve both of our mandates."
- Paulson says the NABE survey estimate of breakeven payroll employment (the pace of job gains that is needed to keep the unemployment rate steady) of 75,000 nonfarm payroll jobs "sounds really reasonable... I would suspect that it's lower than 75,000".
- She says "I know it's [the breakeven rate] lower than it was before... it's going to be within the standard of error. That includes some things that are negative. And so I think that's going to that's another reason why I think it's really important to look at ratios rather than those job flow numbers. Because when you've got supply and demand changing at the same time, it's really hard to assess...we've got structural things going on, at the same time that cyclical things are going on. And so that's why I'm going to be looking at at some of those ratios."
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AUSSIE 3-YEAR TECHS: (U5) Bounces Further Off Support
- RES 3: 97.190 - High May 5 2023
- RES 2: 96.932 - 76.4% of Mar-Nov ‘23 bear leg
- RES 1: 96.860 - High Apr 07
- PRICE: 96.550 @ 15:36 BST Sep 12
- SUP 1: 96.430/95.900 - Low Sep 3 / Low Jan 14
- SUP 2: 95.760 - Low 14 Nov ‘24
- SUP 3: 95.480 - Low Jan 11 2023 and a major support
Aussie 3-yr futures are trading off recent lows. A resumption of gains from here would further narrow the gap with resistance at 96.730, the Sep 17 ‘24 high, leaving 96.860 as the next key level. Any continuation lower would instead strengthen a bearish threat. This would refocus attention on 95.760, the 14 Nov ‘24 low. Conversely, a reversal higher would open 96.860, the Apr 7 high.
FED: MNI Fed Preview-September 2025: A Reluctant Return To Easing
We've published our preview of the upcoming FOMC meeting - Download Full Report Here
- The Federal Reserve is set to resume its easing cycle at the September 16-17 meeting with a 25bp cut to the funds rate range to 4.00-4.25%.
- The decision to cut after a 5-meeting pause was well-telegraphed by Chair Powell, whose Jackson Hole speech described a “shifting balance of risks” toward a weaker labor market that “may warrant adjusting our policy stance”.
- The updated quarterly projections aren’t likely to bring many changes to the macroeconomic variables, but as usual the signal sent from the Fed rate “Dot Plot” will garner attention. A Committee split between expecting one or two further cuts this year is likely, keeping each of the remaining meetings of 2025 “live”.
- The Statement will downgrade the description of the labor market to reflect a rise in the unemployment rate and poor payrolls growth, and is likely to include at least one dissent to the rate decision.
- But with a Committee that is fairly divided on the way forward, Powell will be noncommittal on future action, reiterating that policy is not on a preset course, and upcoming decisions will be data-dependent.
- A key undercurrent is an increasingly activist approach to Fed personnel management from the White House, which leaves the composition of the FOMC uncertain not just over the medium-term but also at this meeting.
MNI’s separate preview of sell-side analyst summaries to follow on Monday Sep 15
RATINGS: Fitch: France Cut To A+ From AA, Portugal Up To A From A-
Fitch has downgraded France's sovereign rating to A+ (with stable outlook) from AA-. Release here.
- Among other factors in the decision, Fitch cites "High and Rising Debt Ratio", "Political Fragmentation Hinders Consolidation", "Weak Fiscal Record", "High 2025 Deficit", "Uncertain Fiscal Consolidation Path", and "Fiscal Rigidities".
- In "Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade", Fitch cites "Public Finances: A sustained increase in government debt/GDP over the medium term, due to failure to implement fiscal consolidation measures and/or a persistent increase in financing costs" and "Macro: Materially lower economic growth prospects and weakened competitiveness." Conversely, potentially leading to positive ratings action would be "Public Finances: Confidence that government debt/GDP will be put on a downward trajectory over the medium term, for example, due to fiscal consolidation and/or stronger economic growth".
- Fitch also raised Portugal to A (stable outlook) from A-, while elsewhere, S&P raised Spain to A+ (stable outlook) from A.
- As MNI wrote earlier, we expected France to be downgraded to A+ and Portugal to be upgraded to A.
