Federal Reserve Meeting (Sept. 16–17, 2025): Scenarios and Implications for Emerging Markets and Egypt

The US Federal Reserve convenes today, September 16, and will conclude tomorrow, September 17, with a press conference. This is its quarterly policy meeting, which includes the release of economic projections and the dot plot. Markets are pricing in with near certainty, a 25-basis-point cut from the current 4.25%–4.50% range, while assigning a small probability to a deeper 50-basis-point move. The debate is heightened by political pressure from President Donald Trump, who has been calling publicly for more aggressive easing, raising renewed questions about the Fed’s independence, particularly following the Senate confirmation of Stephen Miran and the temporary court-ordered extension of Lisa Cook’s tenure.

The economic backdrop supports the case for monetary easing. Core CPI inflation stood at 3.1% year-on-year in August, while the broader PCE index registered 2.6% in July. Labour market conditions have softened, with unemployment rising to 4.3% and only 22,000 jobs created in August, alongside substantial downward revisions to prior months’ figures. These indicators have strengthened expectations for a policy shift; a sentiment already reflected in a weakening dollar and record-high gold prices ahead of the meeting.

In Egypt, the Central Bank of Egypt (CBE) cut rates by 200 basis points at the end of August, bringing the overnight deposit rate to 22% and the lending rate to 23%. Urban inflation slowed to 12% in August, while the official exchange rate has remained near EGP 48.1 per US dollar. Any move by the Fed will inevitably shape the trajectory of the Egyptian pound, local debt yields, and portfolio inflows. It is also worth noting that the Fed has twice slowed the pace of balance sheet reduction this year, most recently in April, when it lowered the cap on Treasury roll-offs to $5 billion per month — leaving markets highly sensitive to any further hints about the eventual end of quantitative tightening.

25bp Cut, Dovish (symbol of peace – monetary easing)

In this scenario, US short-term yields are expected to fall further, while the dollar would weaken and equities and gold would extend their gains. For emerging markets, a dovish tone would reinforce risk appetite, fuel portfolio inflows into both debt and equities, and continue to compress spreads on dollar-denominated sovereign bonds. For Egypt, a weaker dollar would support stability — and possibly a gradual strengthening — of the pound around the 48 level, easing imported inflation pressures. The local market would benefit as well, with room for the CBE to continue its own easing cycle if data allow, and foreign appetite for local-currency bonds likely to increase. Eurobonds and equities would also see stronger demand and rising prices.

25bp Cut, Hawkish (the hawk – strict and tightening)

If the Fed deliver a modest 25bp cut but pair it with hawkish guidance, the dollar would likely rebound slightly, yields would tick higher, gold would retreat from recent highs, and equities would respond only cautiously. For emerging markets, sentiment improvement would be limited, with inflows focusing selectively on countries with strong fiscal discipline and high real yields. In Egypt, the pound would likely trade narrowly with a mild bias to the downside if the dollar strengthened, while the CBE might pause further cuts. The local yield curve would grind lower at a slower pace, with foreign investors may adopt more caution given FX risks.

50bp Cut

A surprise 50bp reduction would spark a sharp global reaction. US short-term yields would tumble, the dollar would weaken significantly, gold would rally strongly, and equities would surge. For emerging markets, such a move would trigger a pronounced rally in local currencies and debt markets, compressing spreads on dollar bonds. For Egypt, the pound would gain clear support, giving the CBE greater room to accelerate its easing cycle without the risk of capital flight. Imported inflation pressures would ease, though policymakers would remain mindful of commodity markets, particularly oil, which is currently trading near $66–67 a barrel.

No Cut

If the Fed were keeps rates unchanged — a low-probability but still plausible scenario — the reaction would be the opposite. The dollar would strengthen sharply, US yields would rise, and equities and gold would fall. For emerging markets, this would unleash a risk-off environment, with outflows and downward pressure on currencies. For Egypt, the pound would come under immediate pressure and borrowing costs would rise. The CBE would almost certainly pause its easing cycle, local debt yields could rise tactically, and eurobond spreads would widen in line with higher US yields.

Potential Implications for Egypt across Scenarios

Each possible Fed outcome carries distinct consequences for Egypt. In dovish or deeper-cut scenarios, the pound would benefit from dollar weakness, imported inflation would recede, and the CBE would find room to continue lowering rates gradually. Local debt would become more attractive to foreign investors, while eurobonds and equities would also rally. Conversely, in hawkish or no-cut outcomes, the pound would face short-term pressures, forcing the CBE to prioritise stability over easing, while eurobond spreads would widen in response to rising US yields. In short, every move in Washington has a direct footprint in Cairo, with the Egyptian pound remaining the most sensitive barometer of Fed policy at this stage.

The decision itself — whether a 25bp or 50bp cut, or no change at all — is less important than the tone of the Fed’s guidance and the trajectory sketched in the dot plot. For emerging markets, dovish signals would open the door to stronger inflows and improved risk sentiment, while hawkish language would prompt caution and reinforce demand for safe havens. For Egypt, dovish outcomes provide critical support to the pound and create room for continued monetary easing, whereas hawkish or static stances impose renewed pressures on the currency and force a more conservative monetary stance to preserve the attractiveness of domestic assets.