Will the Fed continue to diverge from the policies of other Central Banks?

Author: Casey Wagner Source: blockworks Translation: Shan Ouba, Jinse Finance

There are 42 days until the next monetary policy meeting of the Federal Reserve, and the market is increasingly convinced that the Federal Open Market Committee (FOMC) will make its first rate cut decision of the year in September.

According to data from the Chicago Mercantile Exchange (CME Group), the market currently anticipates a 91% probability that the Federal Reserve will cut interest rates by 25 basis points in September.

In the past, the Federal Reserve aligned its policies with the Bank of England (BOE) and the European Central Bank (ECB), but recent divergences have emerged.

Since 2025, the European Central Bank has cut interest rates twice, in March and June, making the Eurozone benchmark rate over 2% lower than that of the United States. The June rate cut was the European Central Bank's eighth consecutive rate reduction. In July, the ECB paused its rate cuts, citing concerns over uncertainty in global trade policies.

In the June meeting, the European Central Bank also lowered its inflation forecast, expecting an inflation rate of 1.6% in 2026. The forecast for 2025 is 2%, which is in line with the target, suggesting that further interest rate cuts may be paused in the future. However, its economic growth expectations were slightly revised down due to the U.S. imposing tariffs on EU exports.

The Bank of England cut interest rates in May and kept them unchanged in June, mainly due to the rise in oil prices triggered by the conflict between Israel and Iran. Bank of England Governor Andrew Bailey stated that interest rates would "follow a gradually declining path." Bailey also added, "The world is highly unpredictable."

In this regard, Federal Reserve Chairman Powell also expressed his agreement. In multiple speeches since 2025, he has repeatedly emphasized the need to closely monitor economic data before adjusting policies.

At the European Central Bank's annual forum in July, a reporter asked: If it weren't for tariffs, would the Federal Reserve have already started cutting interest rates? Powell responded:

"I think you are right. In fact, after seeing the scale of the tariffs, we paused our actions; basically, U.S. inflation expectations rose significantly after the tariffs were introduced. We did not overreact, and one could even say we did not react at all—we were just waiting."

Last month, Powell also indicated to the media that the FOMC "has not yet made a decision on September," which was expected, but he added that the central bank is weighing the "potential risks of waiting too long," including downside risks in the labor market.

However, not everyone believes that the Federal Reserve will begin to cut interest rates this fall. Analysts at Bank of America (BoA) pointed out in a recent report that the current state of the labor market may not be as bad as it seems: yes, labor demand is decreasing, but labor supply is also decreasing simultaneously, leading to a relatively stable unemployment rate. As we all know, the indicator that Powell is most focused on is the unemployment rate.

Bank of America analysts also pointed out that their internal data indicates that consumer spending in the United States has not significantly declined and is actually still growing.

There are still a full 42 days until the policy meeting, and everything remains uncertain.