Fed Rate Cut Seen Near Certain After Inflation Data

  • The likelihood of a Federal Reserve rate cut in September 2025 is now seen near 100.0% after new data showed U.S. inflation increased at a moderate pace in July 2025, 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, July 13, 2025 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, July 12, 2025, 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.
  • Fed Chair Jerome Powell is expected to speak at a central bank research conference in Wyoming next week, a forum he used last year to point to coming rate cuts with a promise "to do everything we can to support a strong labour market as we make further progress toward price stability." The Fed cut rates at three meetings at the end of 2024, in September and at two meetings after the election in November and December. It has been on hold since. Notably, at the time, the unemployment rate had risen about three-quarters of a percentage point over the prior year.
  • While the unemployment rate has not changed much since, job growth now seems to have slowed, and Bessent rooted his argument for cuts in recent Bureau of Labor Statistics data showing torpid employment gains in May, June and July 2025, in contrast to initial estimates for May and June 2025, indicating stronger employment growth. Fed officials relied on those stronger numbers to argue that the labour market remained in good shape and to hold rates steady at its meetings in June and July 2025.
  • Bessent urged rate cuts as the administration moves forward in its search for a replacement for Fed Chair Jerome Powell. The rate cuts Bessent suggested stop far short of Trump's call for the benchmark rate to be cut to 1% but would drop it from the current 4.25% to 4.5% range to around 3% - roughly what Fed policymakers consider to be a "neutral" stance that is neither boosting nor holding back the economy.

(Source: Reuters)