Federal Reserve is expected to cut interest rates by 0.25% on Wednesday, the first since Trump returned to office

The Federal Reserve will announce its latest interest rate decision on Wednesday, leading a packed week of monetary policy decisions from four of the world’s most powerful central banks.

The US central bank, along with the Bank of Canada, Bank of England, and Bank of Japan, will each make their own decisions by Friday, affecting nearly 40% of the global economy.

A US rate cut, pushed heavily by President Donald Trump’s administration, is expected to be the central event, with Wall Street, Main Street, and global markets all watching closely.

This week’s decisions cover four G7 countries. The Fed’s meeting comes amid growing tension between Trump’s repeated demands for cheaper borrowing and Fed Chair Jerome Powell’s warnings about inflation tied to Trump’s own tariff policies.

But recent job market data has given the Fed the green light. Most analysts expect a 25 basis point cut. Canada and Norway are also likely to move in lockstep, while others like South Africa, Brazil, and Indonesia are expected to sit still for now.

Canada cuts, UK watches, Japan delays

The Bank of Canada is expected to cut its benchmark overnight rate to 2.5%, citing weak job numbers and a second-quarter economic slump. Despite a slight uptick in headline inflation to 2%, core inflation is stable at 3%.

Housing data this week will confirm whether the ongoing easing cycle is having any effect on the stagnant real estate market. So far, there’s been no boost.

The Bank of England is likely to hold its rate steady at 4%. UK inflation data, dropping one day before the BoE’s decision, is expected to show the headline rate at 3.8%, with a minor decline in the services segment. The central bank had forecast a 4% peak in September.

A split vote is expected again as some policymakers push for another immediate cut. The main shift may come from a slowdown in the BoE’s asset sell-off program, which is currently unwinding £100 billion a year in government bonds. With recent volatility, officials are expected to ease up on that pace.

Over in Japan, investors are looking ahead to Friday’s policy call by the Bank of Japan, following CPI numbers that show continued inflation pressure. The central bank is not expected to move rates this time.

Governor Kazuo Ueda has stayed quiet on timing, though many expect a hike is coming if economic strength holds. Japan’s trade balance and Singapore’s non-oil exports, both due earlier in the week, will also shape investor sentiment in Asia.

India’s trade deficit likely narrowed in August, and Pakistan’s central bank is set to hold rates again.

China is flooding the week with economic data (retail sales, industrial output, investment, and unemployment numbers), all of which will offer a read on whether recent government support is slowing the country’s downturn.

Property stats will show how bad the real estate slump has gotten. China also launched two investigations into US chip companies, escalating tensions in the global tech war.

Wall Street prepares for rate decisions and AI-fueled rallies

Before the Federal Reserve meets, US retail sales numbers are expected on Tuesday. Economists forecast a 0.3% rise for August, smaller than in previous months.

With labor conditions weakening and inflation still high, there’s concern that consumers may start pulling back. Weekly jobless claims data on Thursday will help confirm whether last week’s increase was a blip or the beginning of a trend.

While Main Street is showing nerves, just 28% of retail investors called themselves bullish in AAII’s recent survey, Wall Street remains upbeat.

Over the past month, Deutsche Bank’s 2025 forecast for the S&P 500 was upgraded to 7,000, Wells Fargo sees 6,650 by year-end, and a rise to 7,200 by 2026. Meanwhile, Barclays moved its 2025 S&P outlook to 6,450, and Yardeni Research gave a 25% chance of a December rally to 7,000.

“AI is the dominant theme,” said Venu Krishna, Head of US Equity Strategy at Barclays. “Demand for infrastructure is strong, and the fear that AI will disrupt software is overblown.”

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