Deutsche Bank expects the Federal Reserve to continue easing through the remainder of the year, projecting two more quarter-point cuts at the October and December meetings.
“We maintain our baseline expectation that the Fed will cut rates by 25bps at each of its next two meetings,” the bank’s US economics team wrote, which would leave the fed funds rate in a 3.5% to 3.75% range by year-end.
The economists noted, however, that if labor market and inflation data surprise to the upside, they see the potential for the Fed to skip a meeting this year.
The September FOMC meeting largely matched Deutsche Bank’s expectations: a 25bp reduction, a median dot showing two more cuts this year, and Chair Jerome Powell downplaying the signal from the projections.
The one surprise came from Governor Miran, a recently appointed Trump ally, who dissented in favor of a larger, 50bp cut.
Deutsche Bank emphasized that the move reflected a shift in risk management, not a fundamental change in the Fed’s baseline forecasts.
Powell underscored this point in his press conference, calling the decision a “risk management cut.”
The meeting statement highlighted that “downside risks to employment have risen,” with participants expressing slightly less concern about inflation and more about labor market weakness.
Still, the Committee remains divided. The median dot plot showed three cuts in 2025, but the margin was narrow.
“Nine participants foresaw two or fewer cuts this year, while ten were looking for three or more,” DB pointed out. Out-year rate expectations also diverged widely, with forecasts spanning about 150bps.
In Deutsche Bank’s view, Fed chair Jerome Powell’s tone leaned somewhat hawkish relative to the dovish tilt of the dots, leaving the Fed’s path still highly data-dependent.
“The Committee cut rates by 25bps…chair Powell de-emphasized that signal in the press conference,” the analysts noted.
That leaves markets to watch the incoming labor and inflation data closely ahead of the October and December meetings.