Federal Reserve: One-off September hike view – ING

ING economists James Knightley, Padhraic Garvey, and Chris Turner forecast a single 25 basis point Federal Reserve rate hike in September following Chair Kevin Warsh's remarks at the Jackson Hole symposium. They believe this adjustment will be a one-time move rather than the beginning of a tightening cycle. The economists cite weak wage growth, softer housing, and other factors that will help bring inflation to the 2% target next year, causing the Fed funds rate to return to around 3.1%.

Their projections for jobs and inflation suggest that no further hikes will be necessary. While markets are pricing in two and a half additional rate hikes, ING economists think a one-and-done approach is more likely. Since the Federal Reserve's last forecast update, they have observed a weaker Q2 GDP report, slower job growth, and decelerating inflation, which supports their view.

The economists argue that weak wage growth, tariff refunds, and a stagnant housing market will contribute to bringing inflation down to the 2% target. They expect the Fed to project slightly lower inflation than the June forecast, with end-2026 and end-2027 Fed funds forecasts at 4%. The dollar is not expected to rally significantly, as this is seen as a policy recalibration rather than a new tightening cycle.

The Greenback's solid performance has kept risk assets under pressure, and AUD/USD has traded on the back foot, approaching the 0.7100 mark before recovering towards 0.7150. USD/JPY is expected to climb closer to the 154.00 mark during the Asian session. Gold is gaining momentum and challenges the $4,300 level, while JasmyCoin remains constrained between $0.0035 and $0.0040.

The Fed hike bets will be crucial for the dollar's reaction, and Warsh's independence will be tested amid pressure from Trump for lower rates.