Nomura has revised its forecast for U.S. Federal Reserve interest rates, now predicting two 25-basis-point cuts in 2025—one in October and another in December. The move comes after the Fed’s first quarter-point reduction since December, a decision aimed at supporting a weakening economy and addressing labor market concerns.

Analysts at Nomura said the Fed’s cautious stance reflects the risk of slower growth and rising unemployment. While inflation remains above the Fed’s long-term target, the central bank appears more focused on sustaining growth and maintaining market stability.

Fed’s Dovish Shift and Economic Context

The Fed cut rates to counter signs of slowing economic activity in the U.S. Labor market data shows a slowdown in job creation, and some sectors are experiencing rising layoffs.

Chair Jerome Powell emphasized that the Fed remains committed to a data-dependent approach, signaling that future cuts will rely on incoming economic indicators rather than predetermined policy. This measured approach aims to prevent market overreaction while providing support to businesses and consumers.

The Fed’s projections still assume a year-end inflation rate of 3% and an unemployment rate of 4.5%. U.S. GDP growth is projected to be modest, at around 1.6%, reflecting a cautious but steady recovery.

Nomura’s Updated Forecast

Nomura previously expected a pause in October rate cuts. After the Fed’s recent action, the firm now forecasts 25-basis-point reductions in both October and December. Analysts note that this reflects the Fed’s readiness to act if economic conditions deteriorate further.

Nomura highlighted that slower wage growth, softening consumer demand, and declining manufacturing output justify a more accommodative policy. Lower rates are expected to support borrowing, stimulate spending, and stabilize financial markets.

Global Market Reactions

Markets have responded to Nomura’s revised forecast with cautious optimism.

• Equities: U.S. and European stocks initially rallied after the Fed’s quarter-point cut. Technology and consumer discretionary sectors showed the strongest gains. Financials, however, were mixed, as banks face pressure from narrower interest margins.

• Bonds: Short-term Treasury yields fell slightly, reflecting expectations for future cuts. Long-term yields remained steady, signaling that investors expect gradual easing rather than aggressive policy moves.

• Forex: The U.S. dollar weakened against the euro and yen following the announcement. Traders interpreted the Fed’s caution as a signal that the dollar may lose some yield advantage, making emerging market currencies more attractive.

Nomura also highlighted that futures markets now price in an 86% probability of a 25-basis-point cut in October, up from 71.6% before the Fed’s recent move. This indicates strong market alignment with the bank’s forecast.

Implications for Traders and Investors

Traders should closely monitor U.S. inflation reports, payroll data, and consumer spending metrics. These indicators will determine whether the Fed follows through on further cuts.

Sector rotation could occur. Technology and consumer-oriented sectors may benefit most from lower borrowing costs, while financials may experience more volatility. Defensive sectors like utilities and staples may attract investors if markets show signs of risk aversion.

Investors in emerging markets may find opportunities as a weaker U.S. dollar can enhance returns for dollar-denominated assets. Additionally, commodities such as gold and oil may react positively to lower U.S. interest rates, boosting demand and price stability.

Longer-Term Outlook

Nomura expects further cuts in 2026, with reductions in March, June, and September. These projections assume ongoing concerns about growth and labor market health, alongside a continued focus on monetary accommodation.

The Fed’s approach highlights a balance between supporting growth and keeping inflation expectations anchored. Traders should expect volatility around key data releases and policy statements, as markets adjust to incoming information.

Nomura’s forecast reinforces the narrative of a prolonged accommodative cycle, which may benefit risk assets over the medium term while challenging sectors sensitive to interest margins.

Strategic Takeaways

• Lower U.S. rates can support equity markets, particularly technology and consumer discretionary.

• Fixed-income investors may face lower yields but can benefit from stable long-term Treasury bonds.

• Forex traders should monitor the dollar’s performance against other major currencies.

• Commodities may see upward pressure from softer rates and potential dollar depreciation.

• Corporate earnings and economic data releases remain critical for assessing market direction.