FED - A critical Fed decision looms

A critical Fed decision looms

Despite a challenging backdrop — a weakening labor market and still-high inflation — the Federal Reserve (Fed) is expected to opt for further monetary easing at its final meeting of 2025. The rise in unemployment in September highlights growing risks to the job market. Combined with policy rates still above the estimated neutral level, this situation should lead the central bank to implement a third consecutive cut in December.

Our expectations:

• The Federal Open Market Committee (FOMC) is likely to lower its policy rates by 25 basis points, to 3.50%–3.75%, in order to balance risks between inflation and employment.

• In the press conference, Jerome Powell is expected to emphasize the temporary nature of price increases linked to tariffs, underline employment risks associated with the labor market slowdown and clarify that this third easing move brings monetary policy closer to a neutral stance.

• Key employment and inflation data, the release of which was delayed due to the federal government shutdown, will only be available after the meeting. The Summary of Economic Projections (SEP) should therefore remain largely unchanged: long-term policy rate maintained at 3.0% and a “dot plot” reflecting greater uncertainty ahead.

In conclusion: 

Given a divided committee and delayed data publications, Jerome Powell is expected to reaffirm the importance of data dependency and reiterate the Fed’s dual mandate: inflation stabilization around 2% and maximum employment. The outcome should be of no surprise, and the impact should be limited. 

Completed 8/12/2025. This commentary is provided for information purposes only. The opinions expressed by Crédit Mutuel Asset Management are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. Crédit Mutuel Asset Management: 128 Boulevard Raspail, 75006 Paris is an asset management company approved by the Autorité des marchés financiers under n° GP 97 138 and registered with ORIAS (www.orias.fr) under no. 25003045 since 11/04/2025. Public Limited Company (Société Anonyme) with share capital of €3,871,680, RCS Paris n° 388 555 021, Crédit Mutuel Asset Management is a subsidiary of Groupe La Française, the asset management holding company of Crédit Mutuel Alliance Fédérale.