The upcoming Federal Reserve rate decision has been hotly anticipated since last month's meeting, and markets have now priced in their expectation that the Federal Reserve will begin a cycle of interest rate reductions on Wednesday, 18th September.

However, news this morning has been dominated by an apparent second assassination attempt on former President Donald Trump, a stark reminder of the political temperature in the US, which is bubbling over ahead of the November vote. 

Polls suggest that Vice-President Kamala Harris edged in front of Trump following last week's televised debate. However, the margins remain incredibly tight between the two camps and could come down to the swing in votes from less than 1% of the US electorate. This is made up of the 5% of undecided voters from seven key states.

With only seven weeks from polling day, the uncertainty seems to be tipping into exchange rates, with some USD weakness to end last week and a move back towards the higher end of the recent range for the pound. The uncertainty surrounding the outcome of the vote could continue to impact financial markets.

The rhetoric around monetary policy from the Fed has changed from 'Will they cut interest rates?' to 'How much will interest rates change?' following a mixed bag of data releases from the States, which still leave the conclusion of Wednesday's meeting unclear. 

It appears that the US economy has the capacity for a cut in interest rates, designed to stimulate economic activity, now that inflation has fallen back to 2.5% (the lowest since February 2021). Without any movement in the interest rates, the Fed could risk economic stagnation in the US as the larger economies around the globe begin to show a lack of growth potential over the coming months.  

However, the Federal Reserve may tread cautiously to prevent spooking markets and favour a 0.25% cut over a 0.50% cut, given that recent labour market data failed to paint a clear picture.

While the jobs market appears robust overall, with many US businesses still looking for employees and the current cost of living continuing to reduce consumer spending power, some higher profile layoffs in manufacturing (John Deere and Whirlpool, to name two) leave an undercurrent of concern over capacity for economic stimulus, and could mean the Fed choose to balance their move carefully.

Commentary from the Fed's Chair, Jerome Powell, following the meeting, will be key, and many will be looking forward to November's meeting and confirmation that we are expecting up to a 100-basis point cut between now and the end of the year.

The FOMC's Summary of Economic Predictions is also released on Wednesday and will track policymakers' views on growth, inflation, employment, and the relative level of expected interest rate cuts, which could further impact market volatility. This report is published four times a year.