The Week Ahead: Federal Reserve Expected to Cut Rates as Trump Visits UK

The Federal Reserve headlines a monster week for G4 global banks with the Bank of England and Bank of Japan all due to meet in the wake of the ECB’s decision to leave interest rates unchanged. Stagflation is the name of the game as CB try to balance trade-offs between inflation and growth.

Meanwhile, US President Donald Trump and wife Melania come to the UK for an unprecedented second full state visit.

Stock markets come into the week after hitting fresh record highs, whilst gold also has hit all-time highs. And after a wobble bond markets are looking more orderly again with yields down from their peaks – so these central bank decisions are going to be crucial to sustaining the narrative that is underpinning risk appetite.

Here’s a look at some of the key events in the coming days

Fed set to cut

The Federal Reserve is expected to cut rates by 25bps on Wednesday as it seeks to resume the journey to neutral to support a deteriorating labour market, despite warming inflation pressures.

Under huge pressure from the Trump administration, the market believes that softer economic data and specifically weak jobs numbers mean a cut is a done deal, with two more expected this year. While inflation has picked up due to tariffs, economic activity and employment is slowing – risks have skewed to the downside.

The question is whether the market is too complacent about the Fed’s dovish pivot. True, the labour market has worsened sharply, as seen by the recent nonfarm payrolls reports. But it should be noted that the June summary of economic projections showed policymakers expected an easing in employment conditions. Moreover, inflation has picked up some more, with the August CPI print rising to 2.9% from 2.7%, moving further away from the Fed’s target. And faced with unrelenting assaults on his person by Trump, chair Powell may just be inclined to stand pat.

All that said, it seems this meeting is the pivotal moment of the year, when the employment side of the Fed’s dual mandate takes priority over the inflation side.

You can find a full preview of the FOMC meeting here.

Bank of England to hold

The Bank of England is also in a tricky spot as employment weakens but inflation remains higher and more persistent. Having cut in August it’s in no rush to do so again and expected to leave rates unchanged on Thursday, preferring to wait and see on the incoming data and what happens with the Budget. With the chancellor pushing the date for the fiscal event out to November 26th, many now think the next possible cut by the BoE cannot come until the December meeting, slightly stretching out the cadence of roughly quarterly rate cuts that’s widely expected.

Ahead of the BoE meeting the UK’s CPI inflation report will be watched closely and could move sterling. CPI rose to 3.8% in July from 3.6% in June, above forecasts. This upwards pressure on prices has dented hopes for the BoE to move more swiftly to cut rates. Moreover, signs of a pick-up in growth, with the August PMI signalling the fastest expansion in growth in a year despite persistent jobs cuts, has further pushed back market expectations. However, there is a lot of data between now and the 6 November MPC meeting that could mean the BoE does cut again before the Budget.

A complicating factor for the BoE is the rise in debt interest costs. Gilt yields have hit 27-year highs since the August meeting and a Budget of great importance looms. The question for gilts and sterling is less about the immediate policy decision but whether the Bank continues with its quantitative tightening programme. I looked at this in the Long View earlier this month. It ought to be something it is actively looking at, but we might need to wait until December for any real shift. I would stick to my view stated over the last couple of meetings that the BoE is likely to move more slowly but ultimately cut deeper.

Bank of Japan to tee up hike

The Bank of Japan likely won’t move at this meeting but could well pre-commit to tightening. Core consumer price inflation has fallen from a peak in May at 3.7% to 3.1%, while GDP growth has accelerated to 2.2% in Q2 thanks to strong private consumption and capital spending. The next national core CPI report is due out Friday alongside the BoJ decision. The impact of US tariffs on its export-dependent economy remains uncertain, but it looks like the stars are aligning for the BoJ to tee up a hike later this year.

Trump State Visit

Donald Trump will arrive on Tuesday, 16 September for the start of an unprecedented second state visit to the UK. It’s unlikely to be massively market-moving, but equally is hardly going to be unnoticed either. Of note, we are expecting an announcement from Nvidia and OpenAI on a major AI infrastructure investment deal in the UK to coincide with the visit. There is always the possibility of an announcement related to UK-US trade.