Major financial institutions predict varied impacts on economies and markets.
On Wednesday, the Federal Reserve will announce its first interest rate cut in nearly a year. As this significant economic event looms, Fitch Ratings has issued an important warning concerning the current state of the economy and the implications of Trump administration policies. Additionally, three major financial institutions have weighed in with their analyses. This article will delve into all these detailed insights.
ContentsPre-Rate Decision PredictionsWells FargoUnicreditSociete GeneraleFitch Ratings Warning Pre-Rate Decision Predictions
The necessity of reducing interest rates and the journey leading to this stage have been previously explained in detail. For cryptocurrency investors, weakening employment data and limited inflation growth have created a supportive environment. The Fed’s narrative of a soft landing has concluded, and its 2% inflation target may be postponed for several years. Now, we will quickly review various financial institutions’ perspectives on the interest rate decision.
Wells Fargo
Wells Fargo analysts noted that interest rates have been held steady five times as of July 30, highlighting opposition from Waller and Bowman as a significant indicator. Waller’s ambition to become Fed Chair also aligns with Miran’s inclination towards a rate cut.
Inflation remains high due to tariff-driven goods inflation and slow service-sector disinflation, which keeps core PCE inflation about one percentage point above target. We expect the Fed to continue easing in September and lower the fund rate to 4.00%-4.25%, consistent with previous forecasts. Our projections indicate a 3.1% increase in core PCE by the fourth quarter of 2025.
An unemployment rate peaking at 4.3% signals a pivotal moment, and more dovish comments are anticipated in this meeting. Experts anticipate a 75bp rate cut by 2025, targeting a 3.00%-3.25% range by mid-next year, with possible further cuts thereafter.
Unicredit
Similarly, Unicredit anticipates a 25bp reduction. Powell’s focus on employment, complemented by major employment data revisions, is garnering analysts’ attention. Weak August payrolls and a 1 million annual downward revision by BLS pose significant concerns.
With unresolved tariff risks, distancing inflation from the 2% target, and recent positive employment survey signals, a 50bp cut is expected this year — 25bp this month and another in December. A further cut in June indicates very limited easing, which is not favorable for cryptocurrencies.
Societe Generale
Societe Generale, like others, emphasizes the significant shift in the balance of risks, underscoring the need for urgent action. They deviate from consensus, suggesting we might see an emergency action of 50bp.
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Fitch Ratings Warning
The credit rating agency recently released a report highlighting concerns about government policies potentially causing inefficiencies in the chip sector.
Concerning the US acquisition of a 10% stake in Intel, it was noted that this “could generate widespread undesirable inefficiencies.” However, significant negative impacts on ratings appear unlikely, suggesting no grave issues.
“The government’s passive stake in Intel aims to provide investment returns to taxpayers. However, it could disrupt the speed and scale of investments by Intel and TSMC.”
The primary concern is that major investments required for the Ohio plant may become challenging without finding external customers.
“If forced to accelerate Ohio plant investments, inefficiencies might negatively affect Intel’s cash flow and credit profile.”
Though government involvement in the company seems beneficial, limitations on external investors lead to financial inefficiencies. State intervention in this sector disrupts competitive advantages, and while a national supply chain may form, hindrances in the international supply chain could trigger structural inefficiencies.
“This scenario increases the likelihood of the government pressuring leading fabless chip manufacturers like Nvidia and AMD to use Intel’s new emerging foundry business as a significant secondary source, which could suppress profitability.”
What concerns us here is the risk of flagship US companies losing their global development, competition, and growth edge due to Trump policies. This situation could harm risk markets and consequently impact cryptocurrencies.
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