- Fixed Income Analyst
Asia ex-Japan, Institutional
ChangeThe views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
US Federal Reserve (Fed) cuts more than expected, sees balanced risks
The Federal Open Market Committee (FOMC) cut its target policy rate range by 50 basis points (bps) on September 18, with more than 40 bps having been priced into the market before the meeting. There was one dissenter, Fed governor Michelle Bowman, who preferred a cut of 25 bps. Fed Chair Jerome Powell stated that despite the large cut (the first of any size in four years), the FOMC believes that “the US economy is strong.”
In its statement, the FOMC characterized risks to its inflation and employment goals as “roughly in balance.” Other changes to the statement from the prior meeting seemed intended to reiterate that message. The language regarding the labor market was downgraded to say that job gains have “slowed” rather than “moderated,” and new text noted that the Fed is strongly committed to supporting maximum employment, in addition to returning inflation to target. New language also indicated that the FOMC has gained “greater confidence inflation is moving sustainably toward 2%.”
Updated projections indicate more cuts to come
Median projections for the target range for policy rates outlined in the central bank’s Summary of Economic Projections (the “dots” on the widely watched dot plot) came down by 70 bps for both 2024 and 2025, to 4.4% and 3.4%, respectively. The longer-run dot inched up to 2.9%, but this seems more likely to be a product of material dispersion in these forecasts and changes in the FOMC’s composition, rather than a significant signal.
The Fed’s economic forecasts suggest continued growth amid a backdrop of higher unemployment and lower inflation. The median forecast for real GDP growth is 2% for the calendar years 2024 to 2027, generally little changed from June’s forecasts. However, median forecasts for the unemployment rate moved up for the next two years, while inflation forecasts fell.
Powell voices confidence about the economic outlook
Chair Powell’s tone during the press conference was best summarized by his final comment: “I don’t see anything in the economy that suggests the probability of a downturn is elevated.” He repeatedly mentioned that the large cut was intended to preserve economic strength, not respond to economic weakness. Powell largely dismissed concerns about potential acceleration in unemployment, noting that the labor market is “solid” and “close to maximum employment.” When asked about stickiness in shelter inflation, he suggested that the primary driver of housing costs is a supply imbalance, and that despite the lag, the direction of travel in shelter inflation was clearly down.
Implications for investors: The Fed is fickle; focus on the data
Despite the larger-than-expected rate cut, Treasury yields across the curve had moved higher by the end of Powell’s press conference, indicating that some market participants had expected the dots to forecast more cuts. Powell’s optimism may also have supported the price action, but the Fed’s stance has changed over the last few months. In July, the Fed maintained its policy rates; yesterday, it cut them more than expected. Since the June meeting, the Fed’s year-end projection for the target range declined by 70 bps, while its projection for the unemployment rate increased by 40 bps.
While the Fed’s assessment of the economy is important, they are imperfect forecasters. History suggests that the risks to the housing and labor markets are more material than Powell’s tone suggests. As always, we believe investors should focus on the data, not the Fed Chair’s read of it.
Expert
Related insights
Showing
of
Insights Posts
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Time to capitalise on the evolving role of bonds?
Continue reading
event
2
min
Article
2025-09-30
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Walking a mile in Fed Chair Powell’s shoes
Continue readingBy
event
4
min
Article
2025-08-31
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Still waiting…Fed wants more data before cutting policy rates
Continue reading
event
3
min
Article
2024-10-31
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
When the Fed sneezes, the ECB… cuts rates regardless?
Continue reading
event
7
min
Article
2025-03-21
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
June FOMC meeting: May disinflation is welcome, but is not enough for a rate cut
Continue reading
event
3
min
Article
2025-06-30
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
The revenge of the monetarists
Continue readingBy
event
5
min
Article
2025-06-30
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
URL References
Related Insights
Read next
Showing
of
Insights Posts
Fixed income
Monetary policy
Yielding insights
Content CoE Program Global Program
Market commentary
Americas
Opportunistic Fixed Income
Interest rates
Article
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
The real issue on rate cuts? Keep your eyes on the dot (plot)
Keep your eyes on the Fed's 2025 dot plot. The real story is where policy rates are headed, not just the next rate cut.
By
event
3
min
Article
2025-09-30
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Active management
Fixed income
Macro and market
Wealth Program
Americas
Brazil
Canada
Mexico
USA
APAC
Asia
Australia
China
India
Japan
EMEA
Africa
Europe
France
Germany
Italy
Russia
United Kingdom
Emerging markets
Inflation
Interest rates
Macro
Monetary policy
Asset allocation
Article
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Time to capitalise on the evolving role of bonds?
We outline why we think the new economic era is elevating the role of bonds as a source of attractive and stable income, downside protection and portfolio diversification.
event
2
min
Article
2025-09-30
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Economic cycle
Interest rates
Monetary policy
Content CoE Program Global Program
Yielding insights
Article
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Walking a mile in Fed Chair Powell’s shoes
A slow roll on rate cuts by the Fed could frustrate markets and lead to more volatility ahead of the September FOMC meeting. See our take on what to expect for the next few weeks.
By
event
4
min
Article
2025-08-31
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Fixed income
Economic cycle
Monetary policy
Content CoE Program Global Program
Credit
USA
Inflation
Interest rates
Yielding insights
Article
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Still waiting…Fed wants more data before cutting policy rates
Our expert dives into Fed policy following the July FMOC meeting.
event
3
min
Article
2024-10-31
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
When the Fed sneezes, the ECB… cuts rates regardless?
Since the late 1990s, when the US cycle turned, the rest of the world generally followed, with a lag. However, the new economic era is likely to result in greater cyclical divergence between countries and the need for different central bank responses. How should investors think about the age of economic divergence?
event
7
min
Article
2025-03-21
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Fixed income
Macro and market
Monetary policy
Inflation
Interest rates
Credit
Government bonds
Investment grade
Article
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
June FOMC meeting: May disinflation is welcome, but is not enough for a rate cut
Fixed Income Analyst Caroline Casavant discusses what June's FOMC meeting tells us about the US Federal Reserve’s latest thinking on interest-rate cuts.
event
3
min
Article
2025-06-30
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
The revenge of the monetarists
Fixed Income Portfolio Manager Brij Khurana makes the case for a monetarist explanation for moderating inflation.
By
event
5
min
Article
2025-06-30
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Interest rates
Monetary policy
Outlook
Economic cycle
Fiscal policy
Macro
USA
Japan
Europe
France
Germany
Italy
United Kingdom
Fixed income
Macro hedge funds
Credit
Government bonds
Investment grade
Article
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Governments have been slow to reduce their fiscal deficits — it could cost them
Our expert explores the investment implications of continued excessive deficit spending by G7 countries.
event
4
min
Article
2025-06-30
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Powell back to waiting on inflation data
Our expert's key takeaways from the May FOMC meeting.
event
2
min
Article
2025-05-31
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Economic cycle
Interest rates
Monetary policy
Fixed income program
Inflation
Fiscal policy
USA
Credit
Article
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
The Fed’s lessons learned from its COVID response
Fixed Income Portfolio Manager Brij Khurana breaks down the central bank's policy decisions during the pandemic and explains how they continue to affect financial markets.
By
event
6
min
Article
2025-04-30
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Japan equity: Reason to believe
Our expert argues that corporate governance reform and the Japanese economy's escape from persistent deflation have laid the groundwork for a sustainable equity rally.
event
4
min
Article
2025-04-30
Archived
info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
URL References
Related Insights
© Copyright 2024 Wellington Management Company LLP. All rights reserved. WELLINGTON MANAGEMENT ® is a registered service mark of Wellington Group Holdings LLP. For institutional or professional investors only.
The real issue on rate cuts? Keep your eyes on the dot (plot)
Continue readingBy
Brij Khurana