Deutsche Bank-Fed Watcher Coalescing around a September cut-117601311

2025 18:23:07 GMT2025 18:23:07 GMTResearchDeutsche Bankamy.yang@db.comAmy Yang | (+1) 212 250 9959 | amy.yang@db.comSeptember 02, 2025IMPORTANT RESEARCH DISCLOSURES AND ANALYST CERTIFICATIONS LOCATED IN APPENDIX 1. UNTIL 19th MARCH 2021 INCOMPLETE DISCLOSURE INFORMATION MAY HAVE BEEN DISPLAYED, PLEASE SEE APPENDIX 1 FOR FURTHER DETAILS.Fed Watcher: Coalescing around a September cutDeutsche BankResearchAmy YangEconomist(+1) 212 250 9959 | amy.yang@db.comMatthew LuzzettiChief US Economist(+1) 212 250 6161 | matthew.luzzetti@db.comBrett RyanSenior Economist(+1) 212 250 6294 | brett.ryan@db.comJustin WeidnerEconomist(+1) 212 469 1679 | justin-s.weidner@db.com Avik ChattopadhyayResearch Associateavik-a.chattopadhyay@db.comSeptember 02, 2025ResearchDeutsche Bankamy.yang@db.comAmy Yang | (+1) 212 250 9959 | amy.yang@db.comSeptember 02, 2025DB Fed Watcher: Coalescing around a September cut2FedspeakWho**TakeawaysBias*Williams [2] (08/25)▪ Every meeting is definitely “live”▪ GDP growth would continue to slow, but not stall. See 1-1.5% growth rate▪ Unemployment rate historically very low. Slowing growth of labor force▪ Policy still modestly restrictive. Job, price risks closer to balance, will monitor▪ Very slow progress on inflation, hard to separate out tariffs impact. Watch services inflation▪ 40-50bps of core PCE inflation likely due to tariffs▪ Pretty optimistic on where the economy is▪ Era of low r* “far from over”Daly [3] (08/29)▪ Recalibrate policy soon▪ Tariff-induced price hikes will be one-off▪ Can’t wait for perfect certainty before risking job market▪ Dual mandates in tensionLogan [4] (08/25)▪ Could see pressure in money market at quarter end, and use of rate ceiling tools in Sept.▪ Still room to reduce reservesFedspeak, continuedWho**TakeawaysBias*Waller [1] (08/28)▪ 25bps for Sept. meeting. Don’t see greater size as necessary, but that depends on Aug. jobs report not showing substantially weakness▪ Case for cutting stronger than July. See more cuts over next 3-6 months, pace data dependent▪ Recent payroll revisions could indicate inflection point▪ Downside risks to labor market have increased, and continued to build▪ Falling labor supply cannot explain “ugly” numbers▪ Policy “moderately restrictive”, not substantially behind curve▪ Deficit should typically 3% of GDP▪ See Sept. preliminary benchmark revision to reduce monthly job creation by ~60k▪ Sharp rise in unemployment rate for cyclically sensitive age groups, driven by slowing demand, uncertainty over tariff and AI use▪ Ex-tariff inflation close to 2%▪ Higher inflation in Q1 due to tariffs. Should look through tariff effects with anchored inflation expectation▪ Expect equal sharing of tariff costs among foreign exporters, domestic importers and consumers ▪ See slow rise in inflation over 12m, monthly tariff effects to dissipate in early 2026▪ Current rate 120-150bps above nominal neutral of June SEP median* Bias of speech / research for monetary policy: Dovish Neutral H