Reuters poll: Fed likely to resume cutting rates in September

A Reuters poll of economists indicates a likely resumption of Federal Reserve interest rate cuts in the next quarter, with September as the expected start. Over 60% of those polled anticipate at least two rate cuts this year, while forecasting US economic expansion of 1.4% in 2025 and 1.5% in 2026. The US Dollar Index showed no immediate reaction to the headline, remaining flat at 99.00.

Analysis

A significant majority of economists polled by Reuters, specifically 59 out of 105, anticipate the Federal Reserve will resume interest rate cuts in the next quarter, with September being the most probable timing. Furthermore, over 60% of these economists project at least two reductions in the policy rate by the Federal Reserve within the current calendar year. Alongside these monetary policy expectations, the US economy is forecasted to expand by 1.4% in 2025 and 1.5% in 2026. Despite these dovish signals, which typically imply a weaker US Dollar as lower rates decrease the attractiveness of holding the currency, the US Dollar Index exhibited no immediate reaction, remaining flat at 99.00. The Federal Reserve's mandate includes fostering price stability and full employment, utilizing interest rate adjustments as its primary tool; rate cuts are generally implemented to stimulate borrowing and economic activity, which can weigh on the Greenback. This anticipated shift towards easing is reflected in the per-ticker sentiment, with a negative sentiment of -0.4 for the WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU) and a positive sentiment of 0.6 for SPDR Gold Trust (GLD), aligning with the expectation of a depreciating dollar. Grayscale Bitcoin Trust ETF (GBTC) registered a slightly negative sentiment of -0.2. The overall market sentiment score is neutral (0.0) and the market impact score is moderate (0.55), suggesting that while the news is significant, the market may be awaiting further direct signals from the Fed or has already partially incorporated these expectations.

Key Decisions for Investors

• Investors should closely monitor upcoming Federal Reserve communications and key economic data releases for confirmation of the anticipated shift towards interest rate cuts, as this would likely weaken the US Dollar and impact various asset classes.
• Consider adjusting exposure to USD-sensitive assets; a potential decrease in interest rates could favor assets like gold (GLD), which shows positive sentiment, and may warrant caution for USD bullish positions (USDU), which has negative sentiment.
• Evaluate the current flat reaction of the USD Index against the strong expectation of rate cuts, as a definitive move by the Fed towards easing could trigger more pronounced currency movements, presenting either risk or opportunity dependent on positioning.
• Factor in the projected moderate economic growth of 1.4% in 2025 and 1.5% in 2026 when assessing the broader implications of potential rate cuts on equity and fixed income markets.