(BFM Stock Exchange) – Market operators have almost acted a new rate of lowering of rates from the American central bank from next September. They also count on rate reductions of a percentage point cumulative within a year. A rhythm that brings out several design offices.

This has been one of the major engines of the recent increase in equity markets in recent weeks: rate reductions in rate drops from the American Federal Reserve (Fed).

Market operators have clearly enhance their expectations in this area. According to the CME Group’s Fedwatch tool, investors currently attribute a probability of 83.2% to a reduction in guiding rates of a percentage quarter point in September, a figure which even briefly rose to 99.8% last week.

Over one year, market operators estimate that the Fed should lower its rates from a total percentage point.

Several elements have led investors to review their expectations. The last American employment report, that of the month of July, was disappointing, and especially the American Labor and Statistics Office drastically lowered its previous estimates for May and June, with 258,000 less positions.

Then the latest figures from American inflation, also of July, are generally brought out online with forecasts of economists, consolidating market expectations in terms of rate reduction.

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Eyes riveted to Jackson Hole

Finally, the pressures of the American executive were also able to play. Last week, the Treasury Secretary, Scott Bessent, judged that the Fed should lower its rates by half a percentage next month. And 150 points (1.5 percentage point), at 175 base points, in absolute terms.

Recall that the Fed has two objectives in its mandate: price stability, which results in an inflation objective close to 2%, and the maintenance of full employment.

Didn’t the market put the cart, however, before the oxen by considering as acquired (or almost) rate drops from next month and tabling on cumulative discounts from a percentage point in the next 12 months?

Two events could deliver the start of the response this week. On Wednesday, the Fed will publish its “minutes”, that is to say a report of its last monetary policy meeting. During this meeting, the institution had opted for the status quo. But two members had opposed this verdict, namely Christopher Waller, governor of the Fed and one of the favorites to succeed Jerome Powell, the president, next May, as well as Michelle Bowman. Remember, however, that the Fed has 12 members voting at each meeting.

The most important meeting remains that of Friday, with the intervention of Jerome Powell during the Jackson Hole symposium, a kind of large conference of central bankers organized each year in Wyoming by the Fed.

The markets will monitor if Powell, who continues to undergo the wrath of Donald Trump, will deliver indications on the next Fed meeting, scheduled for September 16 and 17.

“All eyes are turned to the Jackson Hole symposium, where the president of the Fed, Jerome Powell, could announce the imminent recovery of the rate of rates, thus giving the tone of American monetary policy for the coming months,” said UBS.

Risk of persistence of inflation

But before Powell’s intervention, several financial intermediaries look at market expectations on rate drops with a circumspect eye.

If the latest inflation figures in the United States have not frankly surprised economists, the details remain relatively worrying.

“The overall figures seem good, but enough components indicate inflationary pressures induced by customs duties (that is to say, significant variations from one month to another) so that we cannot conclude a situation of inflation ‘without danger’ from this report,” explained the authors of the briefing.com letter last week.

In addition, another measurement of inflation, the production price index, has proven itself greater than the expectations of economists last week. Deutsche Bank notes that this index has reached a higher since 2022 and that the consumer price index (“general public” inflation measure) has been the highest, excluding energy and food prices, for six months.

“Given the inflation which has remained practically stable during the past year, the repercussions of customs duties that we continue to anticipate and the offer of labor which maintains the unemployment rate at a historically low level, we always think that the Fed has good reasons to maintain its unchanged monetary policy”, judge Bank of America. The bank also considers that Jerome Powell may somewhat disappoint the market on Friday.

“It is clear that the persistence of inflation remains the largest short -term challenge, as it could easily prevent central banks from reducing their rates,” said Deutsche Bank.

“The term contracts anticipate a drop in Fed rates of more than 100 basic points in the next 12 months, even if inflation should increase due to customs duties,” she also points out.

An unemployment rate that remains low

Banclays, it launched an important warning on Monday. In a note, the British establishment argues that the markets are on the wrong track by tabling on such a rapid pace of reductions in the Fed levels. “Not so fast”, title by the way.

“Market prices suggest a drop of at least 25 base points at the Fed monetary policy of the September Fed. However, despite the high revisions downwards on employment, unemployment and inflation should not modify the recent Powell position a lot,” she explains.

The bank considers that the Fed will not lower its rates until December. Barclays stresses that, despite recent disappointments on job creations, the unemployment rate in the United States remains very low, at 4.2%.

“We think that market players are too confident about a decrease in September, because they interpret the assessment of the FOMC (the Monetary Policy Committee, Editor’s note) on the conditions of the labor market and its reaction function. They seem to believe that the FOMC wishes to considerably lower the rates in order to prevent an additional slowdown in employment. However, the participants in the FOMC seem divided on this issue.” Barclays.

The bank also argues that it is difficult to lower rates at a time when inflation persists at high levels and when it is still likely to speed up with the impact of American customs duties. Barclays estimates that customs surcharge will propel inflation outside food and energy at 3.4% in the fourth quarter (compared to 3.1% in July) and will then maintain above 3% throughout 2026.

In addition, Barclays joins a recent observation of Powell on a critical point. The job market in the United States is slowing down, of course. But this deceleration is not so much due to cyclical difficulties as in an “slowdown in the workforce due to the tightening of restrictions on immigration as well as the aging of non-immigrant workforce”. Barclays also believes that the tightening of immigration rules could cut 60,000 job creations per month on average this year.