Federal Reserve set to slash interest rates, dot plot to signal more cuts to come
- The US Federal Reserve is expected to cut the policy rate for the first time in 2025.
- The revised Summary of Economic Projections, which includes the dot plot, could offer key clues about the policy outlook.
- The US Dollar faces a two-way risk on potential changes to the market pricing of the rate outlook.
The United States (US) Federal Reserve (Fed) will announce monetary policy decisions and publish the revised Summary of Economic Projections (SEP), the so-called dot plot, following the September policy meeting on Wednesday.
Market participants widely anticipate the US central bank to cut the policy rate for the first time since last December, lowering it to the range of 4%-4.25%.
The CME FedWatch Tool shows that investors see only about a 6% chance of a bigger rate cut, while pricing in about an 80% probability of a total of 75-basis-point (bps) reduction for the remainder of the year. This means markets are expecting the Fed to slash interest rates by 25 bps in every meeting until year-end, barring an unexpected larger-than-usual cut.
The revised Summary of Economic Projections (SEP), published in June, showed that policymakers’ projections implied 50 bps of rate cuts in 2025 – less than what markets currently expect –, followed by 25 bps reduction in both 2026 and 2027. Seven of 19 Fed officials pencilled in no cuts in 2025, two of them saw one cut, while eight of them projected two and two of them forecast three cuts this year.
The new dot plot could bring significant changes for several reasons. First, since June, disappointing employment data and relatively stable inflation readings caused investors to lean toward a more dovish policy outlook. In his last public appearance at the annual Jackson Hole Symposium on August 22, Fed Chair Jerome Powell acknowledged that downside risks to the labor market were rising and noted that a reasonable base case was to expect that the inflation effects of tariffs will be short-lived.
Meanwhile, the US Bureau of Labor Statistics (BLS) reported that Nonfarm Payrolls rose by only 22,000 in August, while the Unemployment Rate edged higher to 4.3% from 4.2%. Furthermore, the BLS’ preliminary benchmark revision to the employment data showed that total Nonfarm employment for March 2025 was 911,000, or 0.6%, less than initially reported.
All these data suggest that the Fed mandate of supporting maximum employment may prevail over that of price stability even as inflation inches further away from its target.
“Future guidance is likely to lean dovish as a result of the recent weak labor reports, but not overly so given an inflation overshoot remains a key risk in the near to medium term,” said analysts at TD Securities. “We believe the SEP will reflect this, continuing to show two cuts in 2025 while shifting data projections in a slightly hawkish direction,” they added.
Another reason to expect some changes in the dot plot is political. Senate Republicans confirmed White House economic adviser Stephen Miran to join the Federal Reserve Board on Monday. Miran, who is seen as a dove with a potential to prefer a 50 bps cut, will be able to vote at the upcoming meeting.
Additionally, Fed Governors Michelle Bowman and Christopher Waller – a candidate to replace Chair Powell next year – could look to send a message by reflecting a dovish stance, as they did in July’s meeting. On the flip side, Governor Lisa Cook is expected to participate in the meeting after an appeals court rejected President Donald Trump’s bid to oust her.
Economic Indicator
FOMC Press Conference
The press conference is about an hour long and has two parts. First, the Chair of the Federal Reserve (Fed) reads out a prepared statement, then the conference is open to questions from the press. The questions often lead to unscripted answers that create heavy market volatility. The Fed holds a press conference after all its eight yearly policy meetings.
Read more.Next release: Wed Sep 17, 2025 18:30
Frequency: Irregular
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Source: Federal Reserve
When will the Fed announce its interest rate decision and how could it affect EUR/USD?
The Fed is scheduled to announce its interest rate decision and publish the monetary policy statement, alongside the revised SEP, at 18:00 GMT. This will be followed by Fed Chair Jerome Powell's press conference starting at 18:30 GMT.
There are several different scenarios to consider that could influence the US Dollar’s (USD) valuation in a significant way.
In case the Fed surprises markets with a 50 bps rate cut, the USD could come under heavy selling pressure with the immediate reaction. However, the USD could rebound right away if the reasoning behind such a decision suggests that the Fed wants to frontload the rate cut to buy time to analyze more inflation and employment data before taking another policy step. That, basically, would sharply decrease the chances of subsequent rate cuts.
In a different scenario, the Fed could go for a 25 bps cut as expected, but the USD could still weaken if the dot plot points to a dovish shift in the policy outlook, highlighting multiple rate cut projections next year.
Conversely, the USD could gather strength if the SEP shows only one or two rate cuts are forecast by Fed officials next year.
Market participants will also pay close attention to comments from Chair Powell in the post-meeting press conference. A concerned tone about the labor market outlook and growth prospects could be bearish for the USD, while a reiteration of inflation risks could support the currency.
Deutsche Bank analysts think that the median dot of the updated SEP will likely show 75 bps of total reductions for 2025, 25 bps more than in June.
“However, there is likely to be differing views within the committee. On the dovish side, there could be three calling for a 50bp cut and possibly one or two voting for no change. It has the potential to be the first meeting where three governors dissent since 1988, and the first with dissents on both sides since September 2019,” they add.
Eren Sengezer, European Session Lead Analyst at FXStreet, provides a short-term technical outlook for EUR/USD:
“EUR/USD clings to a slightly bullish stance in the near term. The Relative Strength Index (RSI) indicator on the daily chart holds above 50 as the pair trades above the 20-day and the 50-day Simple Moving Averages (SMAs).”
“On the upside, the first resistance level is located at 1.1830 (July 1 high) before EUR/USD could test 1.1900 (static level, round level) and 1.2000 (round level). Looking south, 1.1680-1.1660 (20-day SMA, 50-day SMA) aligns as a support region before 1.1540 (100-day SMA)."
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.