Markets May Be In For A Shock If Powell Doesn't Live Up To Their Expectations

2025-09-15 03:00:34

(MENAFN- Mid-East Info) By Daniela Sabin Hathorn, senior market analyst at Capital

25bps expected but the risk skew is toward a hawkish-neutral surprise given how dovish markets are priced.
Politics and leadership transition add a subtle dovish bias to the medium-term narrative, but near-term moves will hinge on dots, vote split, and Powell's tone.

It's a busy week filled with central bank meetings, but the focus is going to be heavily on the Federal Reserve on Wednesday. Futures point to a near-consensus 25bp cut at this week's FOMC, with only a small tail risk of 50bp . This balance reflects the latest data mix, with inflation hovering at the top end of 2% amidst a softer labour backdrop after sizable payroll revisions and a weak August print. It's enough to justify easing, but not an outsized move.

The focus in this meeting is going to be less on the decision and more the path forward. The SEP and dot plot will be the market's anchor. Given how much dovishness is already priced, any median path that signals fewer cuts or a slower easing cycle in 2026 would read as hawkish. A split vote or dissent (for 50bp or even a hold) would underscore internal debate and lift uncertainty around the rate trajectory. And with positioning primed for a steady easing cycle, even a neutral press conference from Chair Powell could disappoint markets and nudge equities toward a dovish-to-neutral repricing.

Politics are also present in the background. The clash over Fed independence - from efforts to remove Governor Lisa Cook to the push to seat Stephen Miran - and the vetting of candidates as Powell's chair term nears its end next year may not drive tick-by-tick moves, but perceptions of a more dovish future leadership can shade medium-term rate expectations.

Market set-up feels relaxed into the event: equities near highs and a lot of easing already in the price. If the dots and the presser don't validate that dovishness, the immediate risk is a hawkish-neutral surprise - think fewer 2025 cuts, a higher long-run dot, or a tighter vote.

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