Federal Reserve, FOMC Key Points
- Traders and economists confidently expect the Fed to cut interest rates to the 3.75-4.00% range.
- The key areas of focus for traders will be Fed Chairman Powell’s press conference and whether the central bank ends its QT program, stopping the balance sheet runoff.
- USD/JPY’s reversal yesterday increases the odds of a near-term continuation toward 150.00, assuming the Fed doesn’t offer any hawkish surprises.
When is the FOMC Meeting?
The October 2025 FOMC meeting will conclude on Wednesday, October 29 at 2:00 ET.
Fed Chairman Powell’s press conference will begin at 2:30 ET.
What are the FOMC Interest Rate Expectations?
Traders and economists confidently expect the Fed to cut interest rates to the 3.75-4.00% range.
As of writing, Fed Funds futures traders are pricing in 98% odds of a 25bps interest rate cut per CME FedWatch:
Source: CME FedWatch
Indeed, even looking out to the Fed’s December meeting, traders are highly confident (95% per CME FedWatch) that we’ll see another 25bps interest rat cut. In other words, the FOMC’s path appears to be set for the rest of the year, barring any unexpected surprises.
Assuming the Federal Reserve cuts interest rates by 25bps as expected, the market’s focus will immediately shift to the central bank’s Monetary Policy Statement and Fed Chairman Powell’s Press Conference for potential market-moving changes. Please note that there will be no Summary of Economic Projections, including the infamous “dot plot” of interest rate expectations, from this month’s Fed meeting.
FOMC Meeting Forecast
The slow-but-steady decline in US interest rates is all but certain to continue this week.
While we haven’t gotten any official updates on the labor market since the US government shut down nearly a month ago, the anecdotal readings (including today’s 30K layoff announcement from Amazon) suggest that the most urgent risk for the Federal Reserve remains the labor market. Of course, a 25bps cut to interest rates is unlikely to offer much support to an economy struggling with headwinds around immigration and AI displacement, but when all you have is a hammer, the best you can do is pound on anything resembling a nail.
The key flashpoint for this month’s FOMC meeting will be whether the central bank announces an end to its Quantitative Tightening (QT) program. Essentially the opposite of Quantitative Easing (QE), QT involves the central bank allowing certain debt holdings to mature and run off, reducing the size of its balance sheet.
Source: TradingView
At the margin, QT tightens financial conditions and serves as a (slight) brake on economic stimulus; accordingly, announcing an end of the program would, at the margin, be seen as stimulative for the economy. In simpler terms, announcing an end of Quantitative Tightening could provide a boost to risk-sensitive assets like indices and higher-yielding currencies at the expense of bonds and the US dollar.
While the FOMC seems broadly on track to keep easing monetary policy until the end of the year, we have seen a groundswell of Fed officials expressing skepticism toward continued interest rates into 2026. See this selection of quotes from the last month for examples:
- Dallas Fed President Lori Logan: “There may be relatively little room to make additional rate cuts without inadvertently moving to an inappropriately accommodative stance.”
- Fed Governor Chris Waller: “We need to move with care when adjusting the policy rate to ensure we don't make a mistake.”
- St. Louis Fed President Alberto Musalem: “There is limited room for easing further without policy becoming overly accommodative, and we should tread cautiously.”
- Fed Governor Michael Barr: “After the high inflation Americans have endured, two more years would be a long time to wait for a return to our target, and that possibility weighs on my judgment for appropriate monetary policy. I am also concerned about further upside risks to inflation and inflation expectations."
Though unlikely at this point, if Fed Chairman Powell offers any support for these views in his press conference, it would hurt risk appetite and likely boost the US dollar on expectations of a higher terminal interest rate.
Beyond the focus on traditional economic data, the proverbial elephant in the corner of the room remains President Trump’s relentless pressure on Chairman Powell and the FOMC to cut interest rates to support the economy. His efforts to influence the central bank through direct comments about Chairman Powell, appointing Stephen Miran, and attempting to have Dr. Lisa Cook removed from the FOMC have seen mixed success so far, and I would expect Powell to avoid any direct confrontation, instead deferring to the central bank’s dual mandate as he looks to preserve his legacy by sticking a “soft landing” for the economy and leaving inflation as close as possible to the central bank’s 2% target.
US Dollar Technical Analysis – USD/JPY Daily Chart
Source: StoneX, TradingView
As I’ve often noted, USD/JPY tends to be the currency pair that has the “cleanest” reaction to US economic developments. Looking at the chart above, USD/JPY’s rally stalled out yesterday at the monthly high near 153.25 and turned lower in today’s Asian session on the back of some light “verbal intervention” from Japan’s Economy Minister.
The pair formed a clear bearish divergence at yesterday’s high, showing declining buying momentum and higher odds of a near-term top forming. Of course, a surprise in this week’s FOMC meeting (or the BOJ later in the week) could invalidate any technical setup, but from a purely technical view, there’s a case for near-term downside toward previous-resistance-turned-support in the 150.00 area. This bias would be invalidated by a break above the monthly high in the 153.25 area.
-- Written by Matt Weller, Global Head of Research
Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX
