Synopsis:

SEB anticipates both the Bank of England and the Federal Reserve will implement 25bps rate cuts in their November meetings. While the BoE is responding to easing inflation and recent fiscal support, the Fed is more confident about meeting its inflation target but will likely maintain a cautious, data-driven approach.

Key Points:

• BoE Expectations:
  • Expected to cut the rate by 25bps to 4.75% due to cooling price pressures since September.
  • The Monetary Policy Report (MPR) should revise growth forecasts upward for 2025-2026, reflecting recent budget adjustments, while medium-term inflation projections may rise slightly.
  • Despite Governor Bailey’s suggestion of more aggressive cuts, SEB maintains a forecast of a single 25bps cut as the market remains cautious.
• FOMC Expectations:
  • Anticipated rate cut to 4.50-4.75%, with no new changes to the pace of quantitative tightening (QT) after adjustments in May.
  • Expected guidance includes a modest upgrade in language on jobs and inflation, with the Fed remaining data-dependent.
  • Positive recent economic data supports confidence in achieving the inflation target, though the Fed wishes to avoid further labor market cooling, viewing current rates as restrictive.
  • SEB forecasts gradual 25bps cuts for the Fed, targeting a neutral rate of 2.75-3.00% by end-2025, with potential for upward revision in case of a Trump win/red wave.

Conclusion:

SEB projects 25bps rate cuts from both the BoE and FOMC in November. While the BoE responds to moderating inflation, the Fed remains cautious yet confident in its inflation outlook, with a gradual easing approach likely through 2025. Potential election outcomes, like a Trump/red wave, could prompt SEB to revise the Fed’s rate path higher and delay cuts.