Asian equities traded cautiously at the start of an action-packed policy week, with regional benchmarks steady near multi-year highs as investors focused on what the U.S. Federal Reserve will signal about the timing and pace of interest-rate cuts. The September FOMC meeting will include the release of the Fed’s infamous “dot plot” and forward guidance from Chair Jerome Powell — both expected to be the primary market movers.

Markets have already priced in substantial easing: fed funds futures imply roughly 125 basis points of cuts by late 2026. That positioning leaves little room for disappointment. “The key question for the September FOMC meeting is whether the Committee will signal that this is likely the first in a series of consecutive cuts,” said David Mericle, chief U.S. economist at Goldman Sachs. Investors have signaled they want to see a clear path, not a single, tentative move.

The outcome matters beyond headline equity gains. If the Fed falls short of market hopes, U.S. Treasury yields could rise and the dollar strengthen, pressuring emerging-market assets and Asian currencies that have benefited from a softer greenback and falling global yields. Conversely, a dovish Fed that telegraphs a sequence of cuts would likely boost risk assets, compress credit spreads and weaken the dollar, reinforcing the recent rally that has pushed several Asian indexes to levels not seen in roughly four years.

Central bank actions elsewhere add complexity. The Bank of Canada is widely expected to cut by 25 basis points this week, a move priced in by Canadian yield curves and likely to weigh on the Canadian dollar. The Bank of Japan and the Bank of England are both expected to hold policy steady at their meetings, although both have room to shift if new data prompts reassessment. Together, these central-bank dynamics will shape cross-border capital flows and the relative performance of commodity-linked and yield-sensitive currencies.

Economically, the run-up in markets reflects a broader transition in monetary policy that has been unfolding as headline inflation cools and growth slows in many economies. For investors and policy makers, the challenge is gauging how quickly easing cycles will translate into looser financial conditions and whether labor markets and services inflation will remain resilient enough to keep rates higher for longer.

Strategists warn that markets are highly sensitive to nuance. A Fed decision framed as a single cut with conditional language could be interpreted as a half-measure, prompting volatility. A decisively dovish package could embolden risk-taking but also stoke concerns about future inflation and asset bubbles over the medium term.

As the Fed’s decision and Powell’s press conference approach, traders are positioning for both a relief rally and a rapid repricing if policymakers temper expectations. For investors, the week will be a test of whether fragile optimism can be sustained or whether a more conservative stance from central banks forces a recalibration of stretched market bets.