Nomura Withdraws Its December Rate Cut Expectation

In its updated projection, Nomura stated that it now expects the FED to keep interest rates unchanged during the December policy meeting. The institution had previously forecasted another 25 basis point cut, but Powell’s hawkish tone and the “wait-and-see” stance adopted by several FOMC members prompted a reassessment.

According to Nomura, upcoming economic data could still display mildly dovish trends, but the overall weakness may not be strong enough to reignite concerns over a deteriorating labor market. This view reflects a cautious sentiment that the FED may prefer to pause rate cuts temporarily rather than risk over-stimulating the economy.

Powell’s Hawkish Stance Shakes Market Confidence

During his post-meeting remarks, Powell noted that several committee members were in favor of taking a step back after two consecutive rate cuts, signaling a possible pause in the easing cycle. His statement — “A December rate cut is not guaranteed” — dampened market expectations and disappointed investors who had priced in another cut before the end of the year.

According to data from the Chicago Mercantile Exchange (CME) FedWatch Tool, there is now a 70.4% probability that the FED will hold rates steady in the 3.75%–4.00% range at the December FOMC meeting, while markets are even pricing a 29.6% chance of a rate hike.

Nomura’s Long-Term View: Rate Cuts Expected in 2026

Despite the near-term revision, Nomura maintained its longer-term forecast for monetary easing. The bank expects three 25 basis point rate cuts in 2026, specifically in March, June, and September, signaling that the next easing cycle may be more gradual and data-driven.

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What Powell Said About Labor Market and Risk Balance

Powell noted that labor supply has weakened in line with demand, while employment growth has sharply slowed near balance levels. He added that shifts in the risk balance may require policy adjustments. According to Powell, downside risks in the labor market are rising, and the overall economic balance is being closely monitored.

Inflation and Tariffs

Recent data shows that 12-month PCE inflation increased by 2.6% in July, with core inflation rising 2.9%. Powell emphasized the slowdown in consumer spending and the impact of tariffs on prices. A reasonable scenario assumes that tariff-related inflation effects will be temporary. However, while persistent inflation pressure is possible, labor market risks likely limit it.

Powell stressed that a one-time rise in price levels cannot be allowed to become a sustained inflation problem.

Is Powell Preparing for a Rate Cut

Following Powell’s remarks, the market is now pricing a 91.3% probability of a Fed rate cut in September, up from 75% prior to the speech. Investors continue to fully price in the possibility of two rate cuts by the end of the year.

Impact on Crypto Markets: Bitcoin and Ethereum Rising!

Before Powell’s speech, Bitcoin traded around $112,500, but during the speech it surged to $115,600. Ethereum also climbed to $4,600. This movement highlights how the Fed’s policy stance and dovish signals can influence crypto assets.

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Fed’s Interest Rate Cuts Outlook and Economic Conditions

• The current Fed funds rate stands at 4.33%.

• Investors are expecting two rate cuts by the end of 2025.

• The probability of a 25 basis point cut in September has climbed to 75%.

• Fed official Bowman noted that gradual policy adjustments would continue in order to support the labor market.

At its latest meeting, the Federal Reserve kept its policy rate steady within the 4.25% to 4.50% range. Unlike previous meetings, however, the decision was not unanimous. Two of the 12 FOMC members voted in favor of a 0.25% rate cut. This split decision, along with the tone of the official statement, is being interpreted as a strong signal that a rate cut may come as early as September.

FOMC Projections and Market Expectations

The FOMC’s June projections had already indicated the possibility of two rate cuts before the end of 2025. However, with only three meetings left on the calendar, futures markets have not fully reflected this scenario yet, pricing in only about a 40% chance. On the other hand, some analysts suggest the likelihood is closer to 66%, signaling a solid—but not guaranteed—possibility.

Powell’s Hawkish Messaging

One of the factors reducing expectations of a September rate cut is Fed Chair Jerome Powell’s hawkish tone during his press conference. Powell emphasized that no decision has yet been made for the September meeting. Still, his strong focus on ongoing inflation risks, while downplaying downside risks to growth and the labor market, created a more cautious market sentiment.

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