Fed’s risk management cut
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Why did the Fed decide to cut rates while raising inflation forecasts?
A downside risk to employment, weaker consumer demand, all good reasons for the Fed to cut, which is what they've done today, but they are doing it whilst upping their inflation forecasts and saying more persistent inflation is a risk. So a cut now and more rate cuts are in the dot plot than before. So more risk, particularly for jobs, more cuts? Hmm. Let's discuss. It's Thursday, it's the 18th of September, 2025. It's the morning call. From NAB. Good morning. Well, the Fed has certainly got the markets moving. The dollar, the US dollar, was climbing back a bit overnight till the Fed decision. Then it fell a quarter percent. It reached its lowest in more than a year, but now it's back up 0.3%. In response, the Euro is 0.3% lower.
The pound is down 0.1%. The Aussie is uh 0.4% lower, down to 66.6 US cents, having tipped over 67 cents earlier. Equities uh well sort of favoring small caps in the US. Certainly the the Nasdaq uh lost a third of one percent. The SP is 0.1% lower, but a 0.6% lift in the down, a 0.2% lift in the Russell 2000. But that is a long way back from the Russell 2000's peak, just after the Fed announcement. And bond yields were climbing a little before the Fed uh Fed, then a five basis point drop in 10-year Treasury yields after the Fed announcement. Then back up again, and they kept on climbing while Purdue and Powell was speaking. So now four basis points higher, down two basis points in Germany, and just one basis point lower across much of Europe for European bond yields.
Aussie 10-year yields yesterday. Well, they were at 4.22%.
How did the Fed’s rate cut affect major currency markets?
On futures this morning, six basis points up on that. And oil is lower. WTI down 0.9%. The same for Brent, which is now down to 67.80 about So let's get stuck into the Fed. First of all, here's Nab's Ken Crompton in Sydney. So a 25 basis point cut, no surprise. Trump's new man on board wanted a 50 basis point cut. But um really the interesting thing, I mean they've cut rates whilst updating their inflation forecasts higher and saying there's a uh a higher downside risk on the labour market, but they've also sort of met the market, haven't they, by saying, well, okay, we're pricing in too much well in the dot lots, pricing in a further two cuts this this year. So they're saying yes, more risk, but we're gonna cut more.
Yeah.
Yeah, that that that's pretty fair. Yeah, good morning, Phil. I think that's the way that the market's reacted 'cause the the Fed has arguably, yeah, exceeded market expectations a little bit in the short term. You know, we have um come out, you know, obviously with the help of Stephen Moran putting in well, we assume it's his dot, um uh a hundred uh a hundred and fifty points of cuts over the course of this year. That's helped um, you know, bring the media s plug them put the median dot down at uh down at a total of three cuts, not three fifty point cuts, but um but three cuts this year. So that's a little bit punchy than the market was expecting heading into this. But the uh but the sort of long run dot is still sitting around three, which is where a little bit ac a little bit above where the market was pricing for the end of 2026 before we uh before we got into all this.
So in terms of just simply looking at that cash flow path, um yeah the the the sort of a a blend there. And yeah it's a listen to the to the press conference. I mean the change in the um I guess I guess in the the balance of risks that the Fed is looking at has clearly shifted towards the labour market. Obviously that was well foreshadowed by uh Chair Powell's speech at Jackson Hull the other week and that has obviously led markets to pricing this sort of outcome anyway.
What was the market reaction to Treasury yields and bond spreads after the announcement?
So risks are clearly seen there. In in the end we did only have one dissenter, which was um which was the new um the the the new governor um Stephen Stephen Myron. Um he he would have preferred a fifty at this meeting in line with uh yeah in in in line with those dots that he uh that he put out there. But um Waller and Bowman who um you know he who dissented last time in a dovish direction, they were both with where with where we ended up at twenty five basis points.
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Chapters
8 chapters
1
Why did the Fed decide to cut rates while raising inflation forecasts?
0:01–1:32
2
How did the Fed’s rate cut affect major currency markets?
1:32–3:27
3
What was the market reaction to Treasury yields and bond spreads after the announcement?
3:27–5:36
4
How did the Fed’s dot‑plot change and what does it signal for future cuts?
5:36–7:27
5
Why did the Fed emphasize labour‑market risks in its press conference?
7:27–9:14
6
How are other central banks (Bank of Canada, BOE, RBA) responding to the Fed’s move?
9:14–11:49
7
What do the latest Australian employment figures suggest for the RBA’s policy path?
11:49–13:45
8
What upcoming data releases and central‑bank events should listeners watch next?
13:45–15:34