While conflicting pressures on both sides of the Fed’s dual mandate will make a base rate decision more complex for chairman Jerome Powell and his colleagues, markets are taking it as a win: The Fed may, at last, be forced to cut the base interest rate.
This is what many on Wall Street—and in Washington—want to see. Many argue that the Fed’s current stance, with rates at 4.25 to 4.5 at present, is too restrictive. Markets want to see economic activity fostered by lower borrowing costs.
Siegel, who is senior economist at WisdomTree, said he expects a 0.25bps cut to the base rate at the FOMC’s September meeting and two further one-click cuts for the remaining two meetings in 2025.
“Even an upside surprise in next week’s PPI or CPI—running near a 3% year-over-year pace—should not derail that path, because the policy debate has shifted decisively toward labor-market weakness rather than transient price noise,” Siegel added.
In Europe—even as France works its way through a leadership change—markets were fairly flat with London’s FTSE 100 up 0.18% and Paris’s CAC 40 up 0.2%. Only Germany’s DAX was down, by a slight 0.39%.
Over in Asia the HSI posted a 1.19% bounce with India’s Nifty 50 also up approximately 0.4%. Conversely, Tokyo’s Nikkei 225 was down 0.42% and Shanghai’s stock exchange was down 0.51%.
“I advocate the Fed brings the policy rate below 3% over time; the economy simply doesn’t require restrictive real rates with money growth subdued and inflation trending in the low 2-3% band,” Siegel added. “As cuts progress, the yield curve should normalize from its inverted state, and that shift historically supports equity multiples—particularly for rate-sensitive segments.”
The market is buoyed by the prospect of cuts even despite some shaky data—but Goldman Sachs Jan Hatzius believes there could be more to come.
“We are penciling in an upward revision to the August payroll estimate next month, as seen in 12 of the past 15 September reports,” Hatzius wrote in a note yesterday seen by Fortune. “However, our below-potential 2025 GDP growth estimate of 1.3% on a Q4/Q4 basis suggests that underlying job growth is likely to remain below our 80k estimate of the “breakeven” rate needed to keep the unemployment rate stable, at least in the near term.”
But despite this tightrope, Goldman’s chief economist sees green shoots ahead: “Barring an outright jobs contraction in the next several months, our baseline forecast is that the economy gradually reaccelerates toward potential in 2026 as the drag from higher tariffs abates, fiscal policy turns more expansionary, and financial conditions remain easy amidst monetary easing.”
Here’s a snapshot of the markets globally this morning:
