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Fed Decision Preview: Political Heat, Cooling Jobs — 25 or 50 bps?
The countdown is on. On September 17, 2025, the Federal Reserve is set to announce its next interest rate move, and markets are buzzing with speculation. A 25 basis point (bps) rate cut is almost fully priced in, but the real question is whether the Fed might go bigger with a 50 bps cut under mounting political and economic pressure.
Political Pressure: Can the Fed Stay Independent?
The Fed’s independence is being tested like never before. Calls for deeper rate cuts are echoing from political leaders and influential investors.
Scott Bessent, a well-known macro investor, is urging for a 150–175 bps reduction, with at least 50 bps this September.
Donald Trump has directly pressured Fed Chair Jerome Powell, demanding more aggressive easing.
Critics argue that such political influence could undermine trust in the Fed, raising risk premiums and shaking investor confidence. At a time when markets are extremely sensitive, the perception of political interference could be just as damaging as the economic slowdown itself.
The Data: What’s Really Driving the Cut?
The Fed’s dilemma is rooted in the mixed economic signals:
Jobs Report: August payrolls added just 22,000 jobs, far below expectations. Unemployment ticked up to 4.3%, pointing to a cooling labour market.
Wage Growth: Average hourly earnings rose 0.3% MoM and 3.7% YoY, showing a gradual slowdown.
Inflation: Still elevated, but inching closer to the Fed’s 2% target, giving some breathing space.
In short, the data supports a rate cut, but how deep should the Fed go without sparking fears of “policy panic”?
Bond Market Expectations
The bond market has already spoken:
90% odds are priced in for a 25 bps cut.
10% odds remain for a 50 bps cut, especially after the weak jobs data.
A 25 bps cut would align with expectations, while a 50 bps move could shock markets initially but may later be seen as a proactive measure against slowdown.
The Decision Tree: Possible Scenarios
Base Case — 25 bps Cut
Aligns with market expectations.
Calms investors without looking politically motivated.
Likely modest rally in stocks, bonds, and a slight weakening of the dollar.
Base Case — 25 bps Cut
Low probability, but possible.
Markets could react negatively, particularly growth stocks.
The dollar might strengthen on higher yields.
Aggressive Move — 50 bps Cut
Could be seen as “panic mode” initially.
Short-term volatility likely.
If framed as “insurance,” could later boost equities and credit markets.
Market Impact: What Investors Should Watch
Rates & FX: A 25 bps cut likely triggers a gradual decline in short-term yields and a softer dollar.
Equities: Tech and growth stocks benefit most from lower rates. A 50 bps cut could add volatility but might fuel a bigger rebound later.
Credit & Bonds: Longer-duration assets may rally. Investors should add exposure cautiously.
Australian Markets: A weaker USD could push the AUD higher, benefitting exporters and resources.
Conclusion: All Eyes on September 17
With a 25 bps cut almost certain, the real intrigue lies in the Fed’s tone and forward guidance. Will Powell hint at further cuts in November or December? And will politics shape the message more than the data?
One thing is clear: whatever the Fed decides, volatility is guaranteed. Investors should stay alert — this decision will set the tone for the final stretch of 2025.
Disclaimer
This article is for informational purposes only and does not constitute financial advice. Market investments carry risk. Please conduct your own research or consult a licensed advisor before making any investment decisions.