US Fed Chairman Jerome Powell is not expected to announce a rate cut as the latest FOMC meeting comes to a close later Wednesday afternoon.
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However, the Fed fund futures forward curve is showing a cut to occur either at the end of the September or November meeting, with another possibly in December.
Join 200K+ Subscribers: Find out why the midday Barchart Brief newsletter is a must-read for thousands daily. On the other hand, the US dollar index could be signaling a belief that US interest rates will see hikes to fight inflation rather than cuts as 2025 progresses.
The Federal Open Market Committee, loving known as the FOMC or the Fed, will cut interest rates. No, not today. Don’t be silly. But sometime. Maybe. Unless someone is foolish enough to get the US into trade wars and impose tariffs on nearly every country on earth, including Australia’s Heard Island and McDonald Islands. (Yes, the latter two are described as “barren sub-Antarctic volcanic islands, home to penguins. That’s right. Penguins. Obviously an economic rival.) For now, though, the Fed fund forward curve is indicating no change in interest rates at the conclusion of the latest meeting this afternoon and possibly the September meeting. Despite the bluster and threats from the US president. Enough about him, though. Let’s focus on some key markets early Wednesday morning.
As I mentioned, the Fed fund futures forward curve is indicating no change in rates. For now.
- The nearby July contract (ZQN25) is priced at 95.67, putting the expected Fed fund rate at 4.33%
- Still within the Fed’s target range between 4.5% (red line) and 4.25% (green line)
- Meaning the futures market is indicating no change is expected this month
The next scheduled meetings of the FOMC is September 15 and 16, then November 4 and 5. Here’s where the forward curve starts to get interesting.
- The August futures contract (ZQQ25) is priced at 95.6775 putting the expected rate at 4.3225%, still within the Fed’s expected range when Chairman Powell makes the official announcement Wednesday afternoon.
- However, the September futures contract (ZQU25) is priced at 95.75, putting the expected rate at 4.25%, the low end of the Fed’s current (sorry Tony D.) range. This hints at the market pricing in a possible rate cut on Wednesday, September 16. Or maybe not. Again, it is not below the low end of the range, it just isn’t above. It’s sitting on the mark, meaning the futures market is unsure at this time.
But things get even more intriguing as we look further down the forward curve. Keep in mind there is no meeting scheduled for October.
- The October futures contract (ZQV25) is priced this morning (Wednesday, July 30, 2025) at 95.485 putting the expected rate at 4.155%, below the low end of the target range and indicating the futures market is pricing in at least a 25-basis point rate cut.
- Either in September, or more likely at the conclusion of the early November meeting.
- Speaking of November, the futures contract (ZQX25) is priced at 95.96 putting the expected rate at 4.04, nearing the low end of what would be the new target range between 4.0% and 4.25%.
- Closing out the 2025 calendar year portion of the forward curve, the December issue (ZQZ25) is priced at 96.08 putting the expected rate at 3.92%, indicating a second rate cut at the end of the December meeting.
The futures market seems a bit optimistic, but that isn’t unusual. If you recall my previous pieces on the subject, the forward curve has consistently been showing possible rate cuts, only to keep pushing back the time frame.
Are there indications the Fed could actually raise rates before cuts are made? That’s an interesting possibility. While not being indicated on the Fed fund futures forward curve, it could be argued this is what the potential bullish turn in the US dollar index is trying to tell us.
From a technical point of view, for what that’s worth these days, there is a strong likelihood the US dollar index will complete a bullish reversal pattern on its long-term monthly chart as July comes to a close. All the greenback needs to do is finish the month above the June settlement of 96.75. Early Wednesday morning, with only two trading days remaining in the month and the Index sitting at 98.77, it seems almost a given the greenback will generate a long-term buy. But there are no guarantees in markets, so we will watch to make sure.
If the US dollar index completes a bullish reversal pattern, either a standard spike reversal or a more meaningful key reversal, and Newsom’s Market Rule #6 is taken into account (Fundamentals win in the end), then we would expect the main fundamental factor of the market to turn bullish as well. What is the “main fundamental factor” of any country’s currency? Interest rates. Therefore, if the US dollar index is set to move into a long-term uptrend, the implication is US rates are expected to rise to fight the coming inflation fueled by the aforementioned trade wars and tariffs.
On the date of publication, Darin Newsom did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
