Deutsche Bank expects Fed to cut interest rates by 25 bps in September and December vs prior forecast of only December cut in 2025

Deutsche Bank expects Fed to cut interest rates by 25 bps in September and December vs prior forecast of only December cut in 2025

In a significant update to its monetary policy outlook, Deutsche Bank has revised its projections for Federal Reserve interest rate cuts. The financial institution now expects the Fed to lower rates by 25 basis points in both September and December, a departure from its earlier forecast of a single rate cut in December 2025 [1].

The revised forecast comes amid growing concerns about the U.S. economy's resilience and the impact of recent economic data. The Federal Reserve's annual Jackson Hole Economic Policy Symposium, set for Friday, is expected to provide crucial insights into the central bank's plans. Federal Reserve Chair Jerome Powell will deliver a speech that could offer clues about the Fed's monetary policy intentions, particularly regarding interest rates [2].

Deutsche Bank's analysts cited the July jobs report, which indicated a weaker-than-expected job growth, as a key factor behind their updated forecast. The report suggested that the labor market may not be as robust as initially thought, potentially necessitating more aggressive monetary policy actions from the Fed [3].

The market's reaction to Powell's Jackson Hole speech last year provides a useful historical context. Following his address, the broader market rallied, with the Dow Jones Industrial Average jumping 400 points, or about 1%, while the S&P 500 and Nasdaq increased by 1.3% and 1.8% respectively [4]. However, a hawkish speech by Powell in 2022 led to a significant market decline, underscoring the importance of his upcoming remarks.

The Federal Reserve's preference for a cautious approach to monetary policy was evident in its July meeting minutes, where almost all policymakers believed it was appropriate to hold interest rates. However, some governors, including Michelle Bowman and Christopher Waller, argued for a quarter-point reduction to defend against a weakening job market [5].

In addition to the Jackson Hole speech, investors will closely monitor the Bureau of Labor Statistics' release of data for the Fed's preferred inflation gauge on August 29. Annual inflation is expected to decline to 2.6% based on the core personal consumption expenditures (PCE) price index data [6].

The political climate surrounding the Fed's monetary policy decisions remains complex. President Donald Trump has been vocal in his criticism of Powell and has called for his resignation, despite earlier expressions of confidence in the Fed chair. Several candidates have been named as potential successors to Powell, including Fed governors Bowman, Waller, and Philip Jefferson, as well as White House economist Kevin Hassett and former Fed governor Kevin Warsh [7].

In conclusion, Deutsche Bank's updated forecast reflects the evolving economic landscape and the Fed's potential response to recent data. The Jackson Hole symposium will provide a critical opportunity for Powell to address these concerns and influence market expectations.

References:
[1] https://www.forbes.com/sites/tylerroush/2025/08/21/feds-powell-gives-final-jackson-hole-speech-tomorrow-heres-what-to-watch-for-on-interest-rates-and-more/
[2] https://www.forbes.com/sites/tylerroush/2025/08/21/feds-powell-gives-final-jackson-hole-speech-tomorrow-heres-what-to-watch-for-on-interest-rates-and-more/
[3] https://www.forbes.com/sites/tylerroush/2025/08/21/feds-powell-gives-final-jackson-hole-speech-tomorrow-heres-what-to-watch-for-on-interest-rates-and-more/
[4] https://www.forbes.com/sites/tylerroush/2025/08/21/feds-powell-gives-final-jackson-hole-speech-tomorrow-heres-what-to-watch-for-on-interest-rates-and-more/
[5] https://www.forbes.com/sites/tylerroush/2025/08/21/feds-powell-gives-final-jackson-hole-speech-tomorrow-heres-what-to-watch-for-on-interest-rates-and-more/
[6] https://www.forbes.com/sites/tylerroush/2025/08/21/feds-powell-gives-final-jackson-hole-speech-tomorrow-heres-what-to-watch-for-on-interest-rates-and-more/
[7] https://www.forbes.com/sites/tylerroush/2025/08/21/feds-powell-gives-final-jackson-hole-speech-tomorrow-heres-what-to-watch-for-on-interest-rates-and-more/