But this isn’t the only pressure Jerome Powell and the Federal Open Market Committee (FOMC) are under: Analysts and politicians are also getting their orders in for how much of a cut they want to see.
Despite the fact that the FOMC has reiterated time and again that their decision is based on economic data and anecdotal evidence only, that hasn’t stopped high-profile individuals having their say.
The motivation for a larger cut would be to “make up” for the missed opportunities earlier this summer, Bessent added.
The tone of the FOMC is also likely to turn more dovish, after two dissenters already split from the pack in July over the committee’s decision to keep the base rate at 4.25% to 4.5%. And their stance is likely to be further boosted by the appointment at the next meeting by Trump-nominee Stephen Miran—widely seen by the market as a dove who will push for rates to lower.
But with the FOMC missing a meeting this month—instead heading for the Jackson Hole Symposium—the committee will have more time, and crucial data, to help inform their decision.
Investors should take notice too, wrote Deutsche Bank’s Jim Reid in a note to clients this morning, instead of treating a September cut as a foregone conclusion. “The main takeaway was for the Federal Reserve, as investors dialled up the likelihood of a 25bps rate cut in September,” Reid wrote. “It was the same story for the coming months as well, with 105bps of cuts priced in by the June 2026 meeting at the close, up +4.4bps on the previous day.:
He added: “In their CPI recap, Deutsche Bank’s U.S. economists think that the release isn’t likely to move Fed officials from their priors in either direction, and that the upcoming labour market data will be more important with respect to near-term cuts.”
“With overall inflation likely under control amid a slowing economy, our base case remains that the Fed will resume rate cuts at the September meeting and continue cutting for a total of 100bps,” added Mark Haefele, CIO at UBS Global Wealth Management in a note to clients this morning. “We like medium-duration quality bonds for investors seeking portfolio income amid falling cash rates.”
Markets are perhaps willingly overlooking the small niggle of core inflation notching up to 3.1% in yesterday’s release. This reading (as opposed to headline inflation of 2.7%) may arguably hold more weight with the Fed as it doesn’t include volatile assets like food prices, and sits well ahead of the 2% target.
For this very reason, a portion of analysts are convinced that contrary to the majority opinion, the July data has lowered the likelihood of a cut.
“It seems fair to say that the Fed could be considering a move in September, but I don’t think a cut at that meeting is as much of a given as market pricing is implying,” wrote JPMorgan’s head of investment strategy, Elyse Ausenbaugh, following the report’s release. “We will get plenty of data between now and then that could give the Fed pause one more time before taking action in the fourth quarter.”
“Do not expect a September rate cut” was the message from Larry Tentarelli, chief technical strategist for Blue Chip Daily Trend Report. Tentarelli wrote: “The July payrolls report missed forecasts and the unemployment rate ticked higher—signs of a potentially weakening labor market. Meanwhile, 12-month CPI came in above the prior month for June and now for July.
“While one data point does not make a trend, two consecutive months of higher 12-month inflation will make it difficult for the Fed to justify a rate cut at their September 17 meeting. We remain bullish on the S&P 500 index into year end, but we do not expect a September rate cut unless the jobs market drops off drastically over the next 45 days.”