The Bank of Canada is also expected to cut rates by a quarter point this week, while China’s central bank might trim one of its market rates amid a sluggish economy. The Bank of Japan and Bank of England also meet and are both seen on hold.
Markets are 100% priced for an easing of 25 basis points from the Fed, taking its funds rate to 4.0-4.25%, with futures implying just a 4% chance of 50 basis points.
Just as important will be Fed members’ “dot plot” projections for rates and guidance from Fed Chair Jerome Powell on the extent and pace of any further easing.
Futures already have 125 basis points of cut priced in, so anything less than dovish will disappoint investors.
“After cutting policy rates 25bp, Chair Powell is likely to guide toward a series of further rate cuts, noting that downside risk to employment has increased further following recently softer jobs data,” said Andrew Hollenhorst, chief U.S. economist at Citi, who sees reductions at each of the next five meetings. “We expect median “dots” to signal 75bp of rate cuts this year and for Chair Powell to indicate that rate cuts at upcoming meetings are likely given the shifting balance of risks.” President Donald Trump continued his attacks on the central bank on Sunday, saying Powell was incompetent and hurting the housing market.
A holiday in Japan made for a slow start, with some of the major currencies not trading at all and the euro showing scant reaction to Fitch’s downgrade of France.
The single currency was holding steady at $1.1727, a short way from its recent top of $1.1780. The dollar was a fraction firmer on the yen at 147.77, but well within the 146.22 to 149.13 range of the past month or so.
The euro has been underpinned by a steady outlook for EU rates with the European Central Bank signalling it was in a “good place” on policy. A host of ECB officials are due to speak this week, including President Christine Lagarde.
CHINA DATA DUMPEUROSTOXX 50 futures edged up 0.2%, while FTSE futures fell 0.2% and DAX futures were flat. S&P 500 futures and Nasdaq futures were both little changed.
While the Nikkei was shut, futures stood at 44,570 just below the cash close of 44,768, having climbed more than 4% last week. South Korea’s market rose 0.4% to another record top after surging almost 6% last week on investor optimism over AI technologies and domestic market reforms.
MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.1%.
Yields on 10-year Treasuries stood at 4.07%, having hit a five-month low of 3.994% last week as a run of soft labour data added to the case for aggressive Fed easing.
The three-month average of nonfarm payrolls has slowed to 29,000, well below the 10-year trend of 145,000 and too low to stop the unemployment rate from rising over time.
Data due this week includes retail sales, industrial output, housing starts and weekly jobless claims.
China reports retail sales and industrial production later on Monday and forecasts are for little improvement in either.
U.S. and Chinese officials concluded a first day of talks in Madrid on Sunday on their strained trade ties, and will resume later on Monday.
Trump said he was still negotiating on the divestiture deadline for Chinese short-video app TikTok, while pressuring Washington’s allies to place tariffs on imports from China over its purchases of Russian oil.
The threat of further sanctions on Russia offered some support to oil prices, though concerns about slowing U.S. demand and increased production from OPEC were dominating for the moment.
Brent was little changed at $67.01 a barrel, while U.S. crude firmed a fraction to $62.77 per barrel.
Gold was down 0.1% at $3,639 an ounce, not far from last week’s all-time high of $3,673.95.
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