11 August 2025: Will there be another rate cut in 2025?

The vote at last week’s meeting of the Monetary Policy Committee perfectly illustrates the dilemma its members are facing over the future path of interest rates. Alan Taylor’s original vote for a fifty-basis-point cut was not matched by any of his colleagues despite the dovish comments and views expressed by Swati Dhingra in particular. Meanwhile, there was a difference of opinion expressed between the five permanent members, with Andrew Bailey, Megan Greene, and Dave Ramsden voting for a twenty-five-point cut, while Huw Pill and Clare Lombardelli wanted rates to remain unchanged at 4.25%. Of the independents, the hawkish Catherine Mann wanted rates to remain unchanged.

So far, there have been no comments from individuals regarding their vote, which has left the market to interpret their intentions.

Current and future expectations for inflation should have meant that rates remained unchanged, while the current projections for the economy point to a cut this time and at the next meeting next month, and possibly in November.

While there is a whole raft of FOMC members almost falling over themselves to comment on why the Fed cut rates last week, there are no MPC members scheduled to make speeches this week. This will lead to unnecessary speculation about the unity of the committee and the reasons for the “outliers”, in particular Alan Taylor’s original vote for a fifty-point cut.

During his entire tenure as Governor, Andrew Bailey has proven to be reticent to add to his statement regarding any monetary policy decisions, possibly since his views are not always the same as the majority.

All market participants can do is rely on the Committee’s continued data dependence for guidance, although given where the effect on the economy of changes to fiscal policy may take some long, hard consideration.

The latest employment data is due for publication tomorrow. The jobless rate was at 4.5% in June, and a further rise should tip the balance towards another cut in September.

The pound had a strong week last week, climbing to a high of 1.3459 and matching its fall from the previous week. It closed at 1.3450, and the market will await tomorrow’s data to make a decision on its future path.

There is a considerable decoupling of the U.S. economy from what is taking place in the global economy currently. That may well have been President Trump’s intention when he introduced his trade policies, which included the attachment of tariffs on the majority of U.S. imports from heavy machinery to wine and designer clothing.

There will not be a single sector of the economy that is not touched by Trump’s actions. Doubtless, he will consider this a triumph.

However, not every “shake up” in the economy can be considered a positive, and the current level of the dollar index is a clear sign that investors remain sidelined as the economy adjusts.

Meanwhile, there will likely be another jolt to confidence following the next employment report, given the revisions of May and June’s figures and the poor number for job gains in July. The Present blamed a conspiracy at the Bureau of Labour Statistics for the poor numbers that were seen recently, but, in truth, market participants had been expecting such a jolt since the early Spring.

Jerome Powell and his colleagues on the FOMC remained true to their word, only cutting rates when the data demanded it.

Will there be another cut this year? Almost certainly, but maybe not in September.

An alternative view has been offered by Fed Governor Michelle Bowman. Governor Bowman said on Saturday that the latest market data underscores her concerns about labour market fragility and strengthens her confidence in her own forecast that three interest rate cuts will likely be appropriate this year.

She went on to say that the apparent weakening in the labour market outweighs the risks of higher inflation to come, and she expects to support three rate cuts over the Federal Reserve’s three remaining meetings this year.

“With economic growth slowing this year and signs of a less dynamic labour market becoming clear, I see it as appropriate to begin gradually moving our moderately restrictive policy stance toward a neutral setting”.

The dollar index remains in the thrall of Donald Trump, ignoring for now any future change to monetary policy. It fell to a low of 97.94 last week, but rallied to close at 98.26.

The Eurozone economy has had its fair share of “luck” over the past six months, enabling it to take advantage of what is happening in the rest of the world, the U.S. in particular, to slash interest rates by two hundred basis points.

This has led members of the rate-setting Governing Council to comment on the apparent resilience of the economy, while former ECB President, Jean-Claude Trichet, was drawn into commenting that there is “concrete evidence” that membership of the Eurozone brings price stability.

It is hard to agree with this statement given, even if one ignores the Pandemic, the path of the region’s economy has been turbulent.

Trichet is one of the most emblematic figures in the economic history of a united Europe – the man who takes the helm of the European Central Bank at the moment when the euro enters physical circulation and begins its real journey as the currency of over 300 million Europeans. He is a relic of the time when the ECB was run by Central Bankers, not a diplomat.

But that is where his positive influence ends. He was never a uniting influence and had to rely on the largess of Germany many times, when Europe’s largest economy could not allow the project to fail.

Current ECB President, Christine Lagarde, is running into more staffing issues in her Frankfurt Head Office.

Bosses at Europe’s central bank have been accused of turning the agency into an anti-democratic “fortress”, with some staff members claiming President Christine Lagarde and her team had alienated workers.

It has felt for some time that Lagarde is far removed from the bureaucrat that the job demands, and being a diplomat sees her role differently from the Bank’s staff.

The region is facing some major data releases this week, both for the entire region and individual members. Region-wide employment and GDP data will be published as well, and several countries' inflation numbers.

GDP is expected to have grown by 1.4% year-on-year, which, given the amount of support the economy has been receiving, is not a strong return, while inflation may have dipped a little below its 2% target. That is unlikely to last much longer, given the retreat that has been seen in the value of the Euro recently.

The single currency saw a little strength last week, climbing to a high of 1.1689 and closing at 1.1641. It has seen strong selling interest above the 1.17 level, so traders will likely set sell orders just below that level, limiting any advance

Have a great day!