September FOMC outlook: The Fed is caught between conflicting forces September FOMC outlook: The Fed is caught between conflicting forces September FOMC outlook: The Fed is caught between conflicting forces

September FOMC outlook: The Fed is caught between conflicting forces

Christopher Dembik

Head of Macroeconomic Research

Summary:  Our expectations for the upcoming FOMC meeting.

  • A rate cut is a done-deal and has already been priced in by the market. Based on futures from the CME Group, the probably of a 25bps rate cut is at 82% and a status quo on rate is at 18%. Historically, the Fed has always gone with whatever over 61% of the market forecast.
  • The motivation for the Fed to lower rates will be mostly linked to external factors, e.g. trade war and more importantly tightened financial conditions at the global level due to US shortage. On this last point, we think it’s going to get worse (in the fall) before it gets better (in early 2020). USD funding problems are doomed to increase in coming weeks term due to the expected ramp up of USD treasury bill issuance following the compromise over the debt ceiling in past August. We should be ready for higher FRA-OIS spreads in September/October.
  • The market is not prepared to a hawkish cut. Over the past few weeks, future expectations of further cuts have receded due to positive US data, notably extremely strong core CPI and very solid retail sales for two months in a row. The Fed is in a very tricky situation as it is caught between two conflicting forces: positive domestic data and higher external headwinds. The central bank could prefer to remain careful regarding the macroeconomic outlook and opens the door to a pause, which would also have for advantage to reiterate the independence of the Fed from the White House.
  • What makes us nervous is the macroeconomic impact of Saudi oil disruptions on growth and inflation if it is prolonged more than a few weeks. We don’t think that it will weight much on the Fed monetary policy in the short term but, if disruptions last longer than we all expect, it could constitute a true game-changer. We have already observed a strong jump in inflation breakeven following Sunday’s events.
  • Strategic view: Given various risks that may emerge in coming weeks (Brexit, growth slowdown and US tariffs against Europe following the US victory in Airbus case) and the problem of dollar shortage, the broad USD index is likely to follow an upward trend in the medium term. Historically, period of USD shortage always had positive implications for DXY and negative implications for risk appetite.

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (
- Analysis Disclaimer (
- Notification on Non-Independent Investment Research (

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.