This week highlights include minutes from the FOMC and ECB meetings, the RBNZ rate decision, and the Canadian labour market report.

Wednesday

The Reserve Bank of New Zealand (RBNZ) is expected to lower the Official Cash Rate (OCR) at its 8 October meeting, though the scale of easing remains debated. A Reuters poll showed that 15 of 26 economists expect a 25 bp cut to 2.75%, while 11 expect a larger 50 bp move.

Market pricing currently leans toward a 25 bp reduction, but desks note that risks are skewed toward a more aggressive step. Pricing implies a 44.5% chance of a 50 bp cut and a 55.5% chance of a 25 bp cut.

Westpac and Capital Economics both forecast a 50 bp cut, taking the OCR to 2.50%, arguing that the Monetary Policy Committee (MPC) should deliver a “circuit-breaking” move to adopt a more stimulatory stance ahead of the Christmas and summer trading period. Westpac highlights that the June quarter GDP contraction of -0.9% Q/Q was significantly weaker than the RBNZ’s August MPS forecast of -0.3%, leaving a larger-than-expected negative output gap.

Desks also highlight the recent shift in MPC composition, with the departure of its most hawkish member, Buckle, potentially tilting the balance toward bolder easing.

By contrast, ANZ, BNZ, and Nomura lean toward a 25 bp cut, citing the risk of overshooting late in the easing cycle. ANZ argues that “you don’t normally speed up going into a turn,” preferring a dovish 25 bp cut now, with scope to move further in November.

In the US, will be release the FOMC Meeting Minutes. At its September meeting, the Federal Open Market Committee (FOMC) cut rates by 25 bps, bringing the federal funds target range to 4.00–4.25%, citing a shift in the balance of risks. Bowman and Waller joined the consensus in supporting the 25 bps cut, while new Governor Miran dissented, preferring a larger 50 bps reduction.

The updated projections showed that 9 of 19 officials expect two additional cuts in 2025, 2 officials expect one cut, and 6 expect no further reductions. Notably, one member sees rates 25 bps above the current target, while Miran pencilled in a year-end rate of 2.75–3.00%, which is 125 bps below current levels.

Statement Tweaks

• Forward guidance was adjusted from “in considering the extent and timing of additional adjustments to the target range for the federal funds rate…” to “in considering additional adjustments to the target range for the federal funds rate…”.
• The labour market language was downgraded: it is no longer described as “solid”. The statement noted that unemployment has edged up but remains low, and job gains have slowed.
• Unemployment rate, PCE, and core PCE forecasts for this year were unchanged. For next year, unemployment was revised lower, while PCE and core PCE were revised higher, with the statement noting that inflation has moved up and remains “elevated.”

Powell’s Press Conference

Chair Jerome Powell described the rate cut as a risk management decision, aimed at responding to downside risks in the labour market, while stressing that the Fed does not see a need to move quickly on rates. He said the labour market is cooling, and policymakers are now turning their attention to that side of the mandate.

Powell explained that modestly lowering rates supports a more neutral policy stance and balances risks between employment and inflation. He emphasised that support for the cut was broad but not unanimous, with almost everyone backing the 25 bps move, showing strong unity in cautious action. He reaffirmed a meeting-by-meeting approach, guided by incoming data, and stated that while markets are pricing a path of cuts, the Fed focuses on data rather than market expectations.

Future policy decisions will depend on labour market developments and inflation dynamics. Powell reaffirmed the Fed’s independence, stressing that decisions are data-driven, not political. He welcomed new member Miran, noting that policy decisions require evidence-based persuasion, not personal preference.

Post-Meeting Remarks

Powell reiterated that the Committee will continue balancing elevated inflation risks against a slowing job market, maintaining policy flexibility rather than committing to a preset path. He acknowledged modest job growth and persistent inflation, noting that tariffs contribute to price pressures, while emphasising the Fed’s role in stabilising the economy amid institutional trust erosion.

Market Reaction and Outlook

A wave of decent U.S. economic data before the government shutdown led to a parsing back of dovish pricing. Markets now discount a 25 bps cut at the October meeting, but are split 50/50 on the likelihood of a third 25 bps cut by year-end.

The government shutdown is complicating the Fed’s data-dependent approach, with key releases—including weekly jobless claims, September payrolls, and CPI reports—delayed. Analysts warn this may cloud judgment at the October FOMC meeting, adding uncertainty over further rate cuts amid divided views on inflation, GDP growth, and labour market resilience within the Committee.

Thursday

The only news will be release on Thursday will be the ECB minutes. As expected, the European Central Bank (ECB) kept policy unchanged, holding the Deposit Rate at 2%. In line with consensus, the statement reiterated that policymakers will continue with a meeting-by-meeting and data-dependent approach, without pre-committing to any specific policy path.

Attention therefore shifted to the updated macroeconomic projections, which showed the 2026 inflation forecast revised up only slightly to 1.7% from 1.6%. This was below the consensus expectation of 1.9%, triggering a dovish market reaction as the forecast implied that the ECB may need to loosen policy further to avoid undershooting its inflation target.

However, at the press conference, President Christine Lagarde tempered this dovish reaction, noting that minimal deviations from the inflation target will not necessarily justify policy action. Additional hawkish elements emerged through the upgrade to the ECB’s risk assessment, with risks now seen as more balanced, compared to the previous guidance that they were “tilted to the downside.”

Lagarde also stated that the disinflationary process was over and that policy is in a “good place.”

As is often the case, the meeting account is expected to pass quietly, given its stale nature. With the ECB likely on hold in the near term, the minutes are unlikely to provide significant directional policy clues.

Friday

The upcoming Canadian labour market report will be closely watched to assess whether the recent slowdown is continuing. Following signs of labour market deterioration and with inflation remaining within target (though towards the higher end), the Bank of Canada (BoC) recently cut rates by 25 bps, in line with expectations. The decision reflected a weaker economy and reduced upside risks to inflation.

Governor Tiff Macklem outlined three key reasons for the shift in the balance of risks since July:

• A softer labour market,
• Diminished upward pressure on inflation, and
• The removal of most retaliatory tariffs from Canada.

The BoC also removed its forward guidance, emphasising a cautious, data-dependent approach. Macklem noted that the Bank will now look over a shorter horizon than usual and remain ready to respond quickly to new information.

Another weak jobs report would likely strengthen expectations for a further rate cut in October. Money markets are currently pricing in 15 bps of easing, which implies a 60% probability of a 25 bps rate cut.

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