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The Weekly Fix

<h2 class="hero-header">Diverging views on monetary policy: a closer look at the Fed's path forward</h2> <p>Week of September 23 with Laurie Mount</p>

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Andrzej Skiba, Head of BlueBay U.S. Fixed Income, and members of his investment team deliver level-setting market commentary and forward-looking insights into what's driving fixed income markets in this weekly series.


Diverging views on monetary policy: a closer look at the Fed's path forward

Laurie Mount, Portfolio Manager on the BlueBay U.S. Fixed Income team, discusses the Federal Reserve's recent rate cut, its economic projections, diverging policy views, and the implications for monetary strategy.

Key points:

  • The Federal Reserve implemented a 25-basis point rate cut, lowering the target range to 4.00–4.25%, with updated projections showing stronger growth, higher inflation, and lower unemployment through 2026–27.
  • Diverging views among FOMC members highlight uncertainty regarding future rate cuts.
  • Chair Powell emphasized a data-dependent approach, describing the rate cut as a risk management decision amid shifting risks to labor markets and inflation.

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Read the transcript

Welcome back to The Weekly Fix. My name is Laurie Mount, Portfolio Manager with RBC BlueBay’s US Fixed Income team focusing on cash management strategies.

Last week, the Federal Reserve delivered a widely anticipated 25-basis point cut to the fed funds rate, bringing the target range to 4.00–4.25%. The decision saw only one dissent, with Governor Miran voting for a more aggressive 50-basis point cut. Alongside the rate decision, the Fed also released its updated Summary of Economic Projections (SEP), which leaned hawkish relative to June. The SEP revisions highlighted stronger growth, higher inflation, and lower unemployment for 2026–27, though the dot plot medians shifted only modestly, with a 25-basis point downward adjustment for ‘25–27.

For the remainder of ‘25, the median projection now anticipates 50 basis points of cuts, up from 25 basis points in June. However, the dispersion of views among FOMC members is notable: nine members foresee no more than one additional 25-basis point cut, another nine anticipate two cuts, and one member projects a sharp 100-basis point reduction by the end of ‘25. This divergence underscores the heightened uncertainty surrounding the Fed's path forward.

During his press conference, Chair Powell emphasized the shift in the Fed's risk assessment, noting greater downside risks to labor markets and diminished concerns about upside inflation risks. He characterized the rate cut as a "risk management decision" rather than a reflection of changes to the Fed's baseline forecasts. Powell reiterated the Fed's commitment to a data-dependent approach, a message consistent with prior communications.

Governor Miran’s dissent warrants attention, as it highlights potential tension between the Fed’s monetary policy stance and the preferences of the White House. Miran’s alignment with the administration raises questions about the Fed’s independence—a critical issue as we approach the nomination of a new Fed Chair in 2026. Powell’s resistance to political pressures underscores his commitment to preserving the Fed’s autonomy, but the perception of a growing divide between the central bank and the executive branch could have implications for market sentiment.

Looking ahead, the trajectory of monetary policy for the remainder of the year will largely depend on upcoming labor market and inflation data. The central question remains whether the Fed will implement an additional 25 or 50 basis points of cuts before the end of the year.

In our cash strategies, we will continue to identify opportunities in floating rate securities and longer-dated fixed-rate securities with maturities of less than one year, as we position for a lower rate environment. We will also closely monitor Federal Reserve communications for further insights into the policy outlook and its market implications, alongside key economic data releases.

As always, thank you for joining us and have a great week.

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The Weekly Fix with the BlueBay US Fixed Income Team
Andrzej Skiba, Head of BlueBay U.S. Fixed Income, and members of his investment team deliver level-setting market commentary and forward-looking insights into what's driving fixed income markets in this weekly series.
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