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The U.S. economy is cooling down across the board, and a booster shot of interest rate cuts is ready
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Hello everyone, today XM Forex will bring you "[XM Foreign Exchange Decision Analysis]: The U.S. economy is losing its temperature across the board, and interest rate cuts are ready." Hope this helps you! The original content is as follows:
Despite the lack of official economic data, the Federal Reserve continues to operate and extensively contacts contacts from all walks of life. However, the feedback is not optimistic, which is likely to prompt the Federal Reserve to maintain interest rate cutting mode in the www.xmmen.coming months.
The Federal Reserve confirmed that there are few signs of improvement in the U.S. economy
Although the U.S. government shutdown has not directly affected the operations of the Federal Reserve, the newly released Beige Book report shows that the momentum of the U.S. economy is weakening. This economic report based on field research pointed out that the momentum of economic activity has been slightly lost in the past eight weeks, confirming Federal Reserve Chairman Powell's assertion on Tuesday that "economic conditions have not improved since the 25 basis point interest rate cut on September 17."
www.xmmen.compared with the August report, which showed that 4 of the 12 jurisdictions achieved moderate growth and the remaining 8 had little change, this report stated that overall economic activity had little change - only 3 of the 12 jurisdictions achieved slight to moderate growth, 5 remained unchanged, and 4 experienced a slight contraction.
In terms of the job market, this time it was clearly pointed out that labor demand in various jurisdictions and industries is weak, while the August report showed that employment levels were flat in 11 of 12 jurisdictions. What is even more noteworthy is that in most jurisdictions, more employers are reducing their workforce through layoffs and natural attrition. The interviewed www.xmmen.companies attributed the reasons to weak demand, increasing economic uncertainty, and some www.xmmen.companies' increased investment in artificial intelligence technology.
In terms of prices, the August Beige Book showed that all 12 jurisdictions experienced moderate or moderate price growth, but the increase in selling prices in two jurisdictions was lower than the growth rate of input costs, suggesting that corporate profits were squeezed. Today's report is yet another confirmation that corporate profits are www.xmmen.coming under cost pressures - several jurisdictions noted that input costs continue to grow faster than sales prices, including tariffs, insurance, health care and technologyCost was www.xmmen.commonly cited as a major source of stress.
Two interest rate cuts this year are a foregone conclusion, and the market expects two more cuts in 2026
Federal Reserve Chairman Powell acknowledged on Tuesday that job growth has slowed sharply, and on Wednesday official Stephen Millan even pointed out that the Fed urgently needs to return interest rates to neutral levels as soon as possible. These statements confirm the Fed's policy path of cutting interest rates by 25 basis points at each of its October and December meetings, even if key data is missing. Market pricing has already priced in these two interest rate cuts, and indicates that a further 75 basis points of interest rate cuts may be expected in 2026.
The market fully agrees with expectations of two more interest rate cuts in 2025, but economists are divided over the prospects for an interest rate cut in 2026. The optimistic scenario is that a looser financial environment (lower federal funds rates, Treasury bond yields and a weak U.S. dollar) www.xmmen.combined with clarity on the trade situation will stabilize market sentiment and prompt www.xmmen.companies to restart investment and hiring. In this scenario, the Fed may cut interest rates only once more as currently forecast.
The pessimistic scenario is that the negative impact of tariff policies on the economy will intensify, eventually squeezing consumer spending power and corporate profits. This will lead to continued weakening of labor market momentum and an absolute decline, while an intensifying slowdown in the housing market and price correction will amplify downside risks. In this environment, the Federal Reserve will continue to cut interest rates in early 2026, bringing policy into a stimulus range. The current baseline forecast is somewhere in between - ING expects two more rate cuts in 2026, bringing the federal funds rate target range to 3%-3.25%.
The "seesaw" effect between the U.S. dollar and gold will be very obvious in this context
Under the double blow of the confirmation of the Fed's interest rate cut cycle and weak economic data, the downward channel of the U.S. dollar has been opened. Any rebound could be viewed as a shorting opportunity.
Gold is an interest-free asset, and the main opportunity cost of holding it is the interest rate on U.S. dollar assets. The Fed's clear interest rate cut path means that the opportunity cost of holding gold will systematically decline, which greatly enhances the attractiveness of gold relative to interest-bearing assets such as U.S. bonds.
Under the joint action of the three core driving forces of interest rate cut expectations, the weakening of the US dollar, and safe-haven demand, gold’s rising logic is very solid, and the market outlook is expected to continue to hit new highs.
Spot gold has been rising strongly recently. During the Asian market on Thursday (October 16), spot gold fluctuated and rose, once breaking through the US$4,240/ounce mark. As of 11:58, it hit a record high of US$4,241.93/ounce, an increase of about 0.8%.
The above content is all about "[XM Foreign Exchange Decision Analysis]: The U.S. economy is losing temperature across the board, and interest rate cuts are ready". It is carefully www.xmmen.compiled and edited by the editor of XM Foreign Exchange. I hope it will be helpful to your trading! Thanks for the support!
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