Deutsche Bank on the Fed – “market has jumped the gun on a dovish pivot”

Via a note from Deutsche Bank, urging everyone to chill out on the level of Federal Reserve easing they expect:

• As we approach this week’s FOMC (DB preview here), optimism has again been building that we’re about to embark on a notable Fed easing cycle.
• For the 8th time in this rate cycle, the market has jumped the gun on a dovish pivot and we eventually see this pared back.
• Over the next 18 months to January 2026, markets are now pricing in exactly 175bps of cuts – which is the most since early March. … such a degree of easing over an 18-month period has only previously been associated with recessions, apart from during the mid-1980s when real rates were still extremely high given the legacy from the late 1970s/early 1980 Volcker tight policy cycle.
• DB expect 125bps to the market’s 175bps over the next 18 months. The level of easing only happens because we eventually see a recession.

As for timing:

• DB economists see three rate cuts before year-end but then a pause until September 2025, and a final two cuts in December 2025 and March 2026.

This article was written by Eamonn Sheridan at www.forexlive.com.