The likelihood of a Federal Reserve rate cut in September is now seen near 100% after new data showed U.S. inflation increased at a moderate pace in July and Treasury Secretary Scott Bessent said he thought an aggressive half-point cut was possible given recent weak employment numbers.
Traders in contracts tied to the benchmark federal funds rate on Wednesday put the odds of a quarter-percentage point cut at the Fed’s September 16-17 meeting at 99.9%, according to estimates calculated by the CME Group’s FedWatch tool that followed the release of July Consumer Price Index data on Tuesday and later comments by Bessent noting that the Fed had used fears of a weakening job market as justification for a larger cut last September.
Trump has slammed last year’s cut, the first of three that took place before and after his election, as politically motivated given the proximity to the November presidential vote.
Bessent rooted his argument in recent Bureau of Labor Statistics revisions showing job growth had slowed to a crawl in May, June and July, in contrast to initial BLS estimates for May and June indicating stronger employment growth. Fed officials relied on those stronger numbers to argue that the labor market remained in good shape and to hold rates steady at meetings in June and July.
"If we’d seen those numbers in May, in June, I suspect we could have had rate cuts in June and July. So that tells me that there’s a very good chance of a 50 basis-point rate cut," in September, Bessent said in an interview on Bloomberg television.
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