Week Ahead Economic Preview: Week of 15 September 2025

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Markets anticipate FOMC rate cut as BoE and BoJ hold steady

The big event of the week is Thursday's FOMC meeting, where an interest rate cut is widely expected, though policy meetings are also scheduled in the UK, Japan, Canada, Brazil, Norway and Japan to make for a busy week for central bank watchers.

It is also a heavy week for data releases, which include industrial production and retail sales data for both the US and mainland China, UK inflation and labour market statistics, plus eurozone industrial production numbers.

Markets have baked in a near-certainty that the FOMC will reduce the federal funds rate by 25 basis points from the current 4.25-4.50% range at the conclusion of its 16-17 September meeting. However, there's also a smaller chance signalled that we could see a larger 50 basis point cut.

The meeting also sees the FOMC members' projections for future interest rates updated in the so-called 'dot plot', which will provide an important steer on how policymakers see the rates path evolving over the next few years. The last set of projections showed the FOMC's median expectation was for a federal funds rate of 3.6% in 2026 and 3.4% in 2027, dropping to 3.0% in the longer run.

US policymakers are weighing up different signals on the economy. On one hand, economic growth is showing signs of encouraging resilience, with GDP growth of at least 2% widely expected in the third quarter. Inflation also continues to run above target and unemployment remains historically low. On the other hand, there's an expectation among some on the FOMC that any rise in prices, notably from tariffs, will prove short lived. The jobs market has meanwhile shown signs of cooling, most notably through recent disappointing nonfarm payroll numbers.

The Bank of England is meanwhile expected to leave its policy rate on hold at a two-and-a-half year low of 4.0%, having cut by 25% basis points in a split decision in August. An ongoing quarterly cadence of rate cuts has widely been anticipated, but many analysts are starting to see the next rate cut being pushed out beyond November amid signs that UK growth has picked up and inflation is proving more stubborn than previously hoped.

The Bank of Japan is also expected to remain on hold for now amid worries over price trends, but markets will be looking for signs that more tightening will be on the way thanks to signs of improving economic resilience.

US labor market drives rate cut hopes:

US Fed policymakers have become increasingly concerned about the health of the labor market, driving expectations for a lowering of interest rates at the upcoming FOMC meeting. Recent months have seen the lowest spell of jobs growth since 2010 if the early pandemic months are excluded. However, while the unemployment rate has also edged up to 4.3%, its highest for nearly four years, such a rate is low by historical standards and commonly associated with near-full employment. This potential tightness of the labor market augurs for some caution in reducing borrowing costs while inflation is above target and the pace of economic growth is estimated to be running strong in the third quarter.

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