The July inflation data combined with Treasury Secretary Scott Bessent’s suggestion of a half-point rate cut has made traders predict a Federal Reserve rate reduction in September.
The federal funds rate futures on Wednesday indicated a 99.9% probability of a quarter-point rate reduction according to CME Group’s FedWatch tool. The latest Consumer Price Index report and Bessent’s comments about weak job growth during May and June led to this change.
Bessent stated that if the Fed had access to the weak employment data from May and June before the months passed they might have implemented rate cuts. He expressed his belief that interest rates need to be reduced by 150 to 175 basis points during his Bloomberg TV interview.
The Federal Reserve conducted its last rate reduction during September 2024 but President Donald Trump criticized the move as an election-year political decision. The Federal Reserve has maintained its interest rates at current levels since December.
The upcoming speech of Chair Jerome Powell will take place in Wyoming which he used to indicate policy changes during the previous year. The Fed faces a decision about whether to implement a 25-basis-point reduction or a 50-basis-point reduction in the upcoming month due to declining labor market momentum.
