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Hello everyone, today XM Forex will bring you "[XM Foreign Exchange Market Analysis]: Interest rate cuts encounter objections from hawks or expose FOMC split, Powell's policy space narrows, and the road ahead for easing is difficult." Hope this helps you! The original content is as follows:
On Tuesday, the U.S. job market data was better than expected, and the U.S. dollar index rose. As of now, the U.S. dollar is quoted at 99.19.
Trump: Cutting interest rates is the touchstone for the new Federal Reserve chairman, and two candidates will be considered, possibly by adjusting tariffs to reduce the price of some goods;
British media: Trump will launch the final round of interviews for Federal Reserve chairman candidates this week, with Hassett leading the way. Officials also raised the possibility of Hassett's term being shortened.
Hassett: The Fed has "ample room" to cut interest rates, which would mean a cut of more than 25 basis points. Rate decisions will be made based on my judgment.
U.S. job openings rose to the highest level in five months in October, but hiring continues to be sluggish.
The ADP of "small non-agricultural sectors" in the United States has recovered, with private www.xmtdhf.cnpanies adding an average of 4,750 new jobs per week, ending four consecutive weeks of job losses.
Zelensky refused to "cede territory" and will submit an updated peace proposal to the United States on the 10th. For the first time, Zelensky relented and was willing to vote. Ukraine is negotiating three key documents with the United States and Europe. The United States put pressure on Zelensky to make a quick decision.
British media: Trump "pressured" Zelensky to respond to the peace proposal within a few days, hoping to reach an agreement before Christmas.
BNP: The possibility of a sudden shift in U.S. monetary policy should not be dismissedExaggeration
The last Fed meeting in 2025 kicked off the challenges that will be faced in 2026. The dual-mission outlook calls for different responses, and uncertainty prevails, exacerbated by disagreements among FOMC members and in contrast to the agency's consistent consensus-seeking stance. ?U.S. monetary policy and its independence will face major tests in the www.xmtdhf.cning year, especially as Chairman Powell's term changes. However, the possibility of a sudden U.S. monetary policy shift should not be overstated. The Fed's decisions are expected to continue to be driven by economic fundamentals.
Powell’s legacy: Stick with the data-reliant Fed until the end of his term
Powell’s term as Fed chairman will end in May 2026. The core of his leadership since 2018 has been to keep the central bank apolitical, adopt a data-driven, economic reality-based and responsive approach to perform its duties, while striving to seek consensus. The December meeting is expected to follow this trajectory, continuing the rebalancing of monetary policy outlined by Powell at the Jackson Hole meeting - a rebalancing driven by increased downside risks to employment that became increasingly apparent over the summer. As the outlook on this front has not changed materially since then, a further 25 basis points rate cut is expected at the upcoming meeting, consistent with the cuts in September and October 2025, bringing the federal funds rate target range to 3.5%-3.75%.
In 2025, the reallocation of risks around the Fed's dual mandate provides the basis for monetary easing, while the full impact of trade and immigration policies on employment and inflation may not yet be fully felt. ?The decline in job growth is significant and is further exacerbated by a sharp downward revision to total employment for the period April 2024 to March 2025 (the preliminary estimate is revised down by 911,000).
Scotiabank: It is more difficult for the United States to make further progress in curbing inflation
The US dollar had fallen slightly, and the market maintained a wide range of fluctuations before the FOMC resolution. Stock markets were mixed but limited, overall market sentiment was slightly positive, and global bond yields (mostly) fell slightly after rising higher yesterday.
What will have a bigger impact on markets will be the tone of the internal policy debate (dissenting opinions), updated forecasts and dot plots, and how Chairman Powell lays out the www.xmtdhf.cnmittee's view of the policy outlook. U.S. data will continue to be released, with the consensus estimate for job openings in October www.xmtdhf.cning in at 7.115 million, up from 7.227 million in the previous report (August), indicating further weakness in the labor market.
The NFIB small business optimism index rose slightly to 99 in November (98.3 in October). Details show a slight increase in hiring intentions, and a significant increase in the proportion of www.xmtdhf.cnpanies planning to raise prices (the diffusion index hit the largest increase since April 2023). That could make further progress in containing inflation more difficult. Regardless, President Trump has made it clear that he believes “An "immediate" interest rate cut is a key test for its choice of chairman of the Federal Reserve.
ANZ Bank: Decisive battle with the Fed! The focus turns to next year's policy path, which may result in an additional 50bp rate cut
We expect the Fed to cut interest rates by 25 basis points at this week's meeting, while Powell will send a signal of caution in future interest rate cuts, amid concerns about weak employment and inflation remains high. The Fed is expected to cut interest rates by an additional 50 basis points next year, lowering the target interest rate range to 3.0-3.25% in March and June. Although the U.S. government shutdown has reduced the release of important economic data, the available www.xmtdhf.cnrmation is enough for the Fed to make a judgment, and these data point to a slowdown in economic activity and employment.
Current economic data shows that core retail sales have declined month-on-month, consumer confidence is close to historical lows, manufacturing PMI has remained in the contraction range, the unemployment rate has increased, and ADP employment has decreased. These all indicate that the employment situation is weakening, because the data lags behind. We are concerned that the number of www.xmtdhf.cnpanies reporting price increases is declining, and the ISM service said in November. The business price index fell to its lowest level since April this year, suggesting that the difficult phase of the tariff impact may have passed, while the Beige Book showed that inflation pressure has changed little since October, while wage growth tracking shows that wage growth continues to slow down. Therefore, we believe that inflation pressure continues to ease, but is still in a high range. Some Fed officials believe that the impact of tariffs on inflation is lower than previously expected. In this period, it is expected that most members will believe that the risk of upward inflation has declined. With the continuous interest rate cuts in the second half of 2025, the policy interest rate will be closer to the neutral range, and future policy adjustments will be highly dependent on data performance.
Naissez-faire: Decisive battle with the Fed! How will the hawkish voice affect the path of interest rate cuts? The interest rate will be cut by 25 basis points at this meeting. At the same time, there may be two-way dissent votes at this meeting. The hawks advocate no interest rate cut and the doves advocate a 50 basis point interest rate cut. In order to minimize the dissent, Powell will release hawkish policy language like the October meeting. As interest rates approach the so-called neutral level, the threshold for further interest rate cuts has become higher over the past year. Other officials have used the expression "data dependent" many times, and the data they rely on and prioritize has changed and is now focused on the job market. So we think that as long as the job market continues to weaken and the unemployment rate continues to rise, the path to interest rate cuts will remain clear, even if the hawks are strong, because we expect the unemployment rate to continue to rise into the first quarter of 2026. We believe the Fed will continue to cut interest rates to prevent further weakness in the job market.
The assessment of uncertainty and risks in the economic forecast is likely to remain elevated, as there are significant differences in the market's interpretation of the impact of factors such as tariffs, fiscal policy and immigration on economic variables. As the latest economic data does not deviate significantly from the forecast released in September.The forecast for 2026 will change significantly. If the median forecast is adjusted to a certain extent, we believe it will be reflected in higher economic growth expectations and higher unemployment rate expectations. Inflation trends are broadly consistent with the Fed's expectations, so we do not expect a significant shift in core PCE expectations. We expect the midpoint of the policy rate to remain at 3.375% in 2026, but risks may be tilted to the downside given unemployment and inflation expectations.
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