MSCI Emerging Markets Stocks End 9-Day Rally — Blame the Fed’s Lack of Dissent

TradingKey - Emerging market equities and currencies have recently surged on expectations of a weaker U.S. dollar, with the MSCI Emerging Markets Index posting nine consecutive days of gains — its longest winning streak in a year and a half. However, the rally stalled after the September Fed meeting, where the first rate cut of 2025 was delivered as expected. Beyond the fact that the cut was already priced in, the lack of dissenting voices within the FOMC emerged as a surprising headwind.

As of writing (September 18), the MSCI Emerging Markets Index was down 0.08% at 1,346.83. The index had risen for nine straight sessions, marking the longest such streak since early 2024; earlier in the Asian session, it briefly continued rising, poised to set its longest rally since January 2023.

MSCI Emerging Markets Index, Source: CNBC

The immediate cause of the pause in emerging market gains was the mixed signals from the Federal Reserve’s September policy meeting. After a nine-month pause, the Fed cut rates by 25 basis points, as widely anticipated, citing rising risks to employment that outweighed concerns about inflation rebounding.

According to the latest Summary of Economic Projections (SEP):

• Only 9 out of 19 policymakers forecast two more cuts this year — less than half
• 2 officials expect just one more cut
• 6 support no further cuts
• 1 even projects a rate hike

As expected, Stephen Miran, the Fed governor swiftly appointed by President Trump, cast the sole dissenting vote, advocating for a 50-basis-point cut.

But surprisingly, Waller and Bowman, who dissented in the previous meeting, did not hold their ground this time. Both are seen as potential candidates for the next Fed chair under Trump and were expected to align with his push for aggressive easing. Instead, they appeared to set aside political pressure and supported the consensus decision.

Standard Chartered economists noted that some market participants had expected more dissenters beyond Miran. The unity among other FOMC members may have ruled out any near-term shift toward an overly dovish stance.

Compounding this, Chair Jerome Powell offered no clear dovish signal during his post-meeting press conference, contributing to a slight reversal in emerging market sentiment.

The MSCI Emerging Markets Index is up about 26% year-to-date, outperforming the S&P 500’s 12% gain. Analysts attribute this rally to:

• Anticipated Fed rate cuts
• A weakening U.S. dollar
• Easing global inflation pressures

The Financial Times argued that emerging markets could be the primary beneficiaries of the Fed’s easing cycle. If lower rates help sustain U.S. growth, demand for EM exports and assets would improve. 

Meanwhile, many EM central banks are also cutting rates — JPMorgan notes that 19 out of 21 tracked EM nations are now in a rate-cutting cycle.

For these economies, a weaker dollar means stronger local currencies, boosting investor confidence and reducing import costs.

UBS added that domestic capital flows have also fueled the rally — particularly strong retail investor participation, most notably in China.

Therefore, with expectations of heightened political interference in the Fed, the fact that two of Trump’s three allies on the board did not amplify the call for faster easing, combined with an overall less accommodative forward guidance, has weakened the "weak dollar" momentum that had been driving emerging market gains.