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Expectations for a rate cut by the Federal Reserve change, and the market focuses on Thursday's non-farm payrolls data
Wonderful introduction:
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Hello everyone, today XM Forex will bring you "[XM Foreign Exchange Market Analysis]: The Fed's interest rate cut expectations have changed, and the market is paying attention to Thursday's non-agricultural data." Hope this helps you! The original content is as follows:
On Monday (November 17), due to the decline in the probability of the Federal Reserve cutting interest rates, the U.S. dollar index experienced a slight rebound for two consecutive days and is currently trading around 99.30. The dual constraints of partial opinion divergence and the stickiness of inflation are continuously delaying the implementation of interest rate cuts. The third interest rate cut originally expected by the market in December 2025 is now full of suspense. Most opinions believe that the next interest rate cut will most likely be postponed to 2026. Remaining high inflation, chaotic economic data and widening internal differences will jointly push the Fed's monetary policy to a critical turning point in the xm217.coming weeks.
Internal divisions intensify and the three camps xm217.compete for policy direction
Three clear camps have formed within the Federal Reserve. Doves, hawks and wait-and-see factions are engaged in fierce xm217.competition around the dual missions of "price stability" and "full employment." This balancing process is full of challenges: low interest rates can boost employment but may push up inflation; high interest rates can suppress prices but tend to weaken the job market.
Differences were fully revealed in the October interest rate resolution. Kansas City Fed President Jeff Schmid opposed an interest rate cut due to concerns about a rebound in inflation, while Fed Governor Stephen Millan advocated a substantial interest rate cut of 50 basis points. The final meeting reached a xm217.compromise with a small interest rate cut of 25 basis points.
In November, disagreements further intensified. Officials such as Boston Fed President Susan Collins and Atlanta Fed President Raphael Bostic, who had previously supported interest rate cuts, issued cautious signals and clearly warned of inflation risks, suggesting that it is not appropriate to continue easing in December.
Data fog shrouds the economy and the policy environment is xm217.complex and volatile
The government shutdown has greatly hindered the Federal Reserve’s decision-making, and the release of key economic indicators has been suspended.The bank had to rely on private survey data to advance its work and fell into a "data fog."
Data disclosed before the shutdown showed that inflation rebounded to 3% year-on-year, still higher than the 2% target level; the unemployment rate was stable at 4.3%, but xm217.companies’ willingness to recruit was sluggish. Giants such as Amazon, UPS, and Verizon have successively announced thousands of layoff plans.
The sources of price pressure are becoming increasingly diverse. In addition to the potential fluctuations caused by the White House’s cancellation of import tariffs on coffee, bananas and other food products on November 14 (the impact remains to be seen), the hidden dangers of rising costs in service industries such as elderly care and day care services are also becoming increasingly prominent.
At the same time, the rapid penetration of artificial intelligence and the Trump administration’s immigration policy adjustments have further exacerbated the structural uncertainty in the job market and made it more difficult for the Federal Reserve to calibrate its policies.
Market expectations reversed and the probability of an interest rate cut in December fell sharply
Previously, the market was almost certain that December would usher in a third consecutive interest rate cut. However, as Federal Reserve officials released hawkish signals, market sentiment quickly turned. Federal Reserve Chairman Jerome Powell clearly suppressed expectations of an interest rate cut in December at a press conference on October 29, saying bluntly that "this is absolutely not the case."
The Chicago Mercantile Exchange (CME) Federal Reserve Watch Tool showed that the probability of a December interest rate cut had dropped to 44.4% on November 14, and subsequent changes have further changed. Last Friday, short-term interest rate futures data showed that the probability of suspending interest rate cuts in December has risen to 60%.
Only 24 hours ago, market expectations for this outcome were still balanced, and in the previous weeks the market had been significantly inclined to support a December interest rate cut.
The new consensus of easing will slow down significantly in 2026
Wall Street institutions are generally cautious about the possibility of an interest rate cut in January 2026, believing that if inflation remains high, a January interest rate cut will also be difficult to achieve.
However, leading institutions such as BlackRock, Goldman Sachs, and Morgan Stanley all predict that the Federal Reserve’s easing cycle will most likely start in 2026, but the pace will be slower than previously expected. Among them, BlackRock predicts that the federal funds rate may drop to around 3.4% by the end of 2026.
Many Federal Reserve officials have continued to speak out recently. Kansas City Fed President Jeffrey Schmid, Dallas Fed President Lori Logan and Cleveland Fed President Beth Hammack reiterated their hawkish stance, believing that there is currently no clear sign of the need for further easing; while Federal Reserve Board Governor Stephen Millan continues to advocate for significant interest rate cuts and shares the same view as President Trump, believing that current interest rates are too high.
As economic data gradually resumes after the government shutdown ends, and more policymakers express their views, market expectations for interest rate cuts may still fluctuate. But in any case, the stubbornness of inflation and deep internal differences have doomed the Fed's path to interest rate cuts to be full of bumps, and 2026 may be the real starting point of this easing cycle.
Summary and technical analysis:
Although the probability of the Federal Reserve cutting interest rates in December has declined, its interest rate cutThe policy direction of purchasing government bonds to release liquidity has not changed, resulting in the U.S. dollar index likely to maintain a long-term downward trend.
The U.S. dollar index is currently suppressed by two rising trend lines and key pressure levels. It has closed below the line for three consecutive days, indicating that the U.S. dollar index is likely to continue to adjust downward. The market is paying attention to the U.S. non-farm payroll data for September released on Thursday and the labor force data released on Friday.
The above content is all about "[XM Foreign Exchange Market Analysis]: The Fed's interest rate cut expectations have changed, and the market is paying attention to Thursday's non-agricultural data". It was carefully xm217.compiled and edited by the XM foreign exchange editor. I hope it will be helpful to your trading! Thanks for the support!
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