Market Talk: Could the Fed Cut Rates by 50 bps in September? | Reuters

Fed Rate Cut Speculation and September Outlook

• 🎯 Markets are fully pricing in a 25 basis point rate cut by the Federal Reserve as soon as September.
• 💡 Dovish rhetoric from Fed policymakers has increased, supported by recent data confirming earlier views.
• 📈 While a 25 bps cut is considered a 'given' due to a significantly softer labor market, markets might begin pricing in a 50 basis point cut, though delivery is uncertain.

Inflation Trends and Tariff Impacts

• 📊 For July's CPI numbers, the expectation is for core inflation to be slightly below consensus, with headline inflation at 2% month-over-month.
• 📉 Dampening factors like lower shelter costs, airfares, and hotel costs are expected to offset tariff-related pass-through effects on core inflation.
• ⚠️ Tariffs from President Trump's trade policies have impacted inflation in specific sectors with high import content, but not enough to cause an upside surprise in overall inflation.

Political Appointments and Data Integrity

• 📌 President Trump has appointed loyalists to key economic institutions, including EJ Anton to lead the Bureau of Labor Statistics (BLS) and Steven Moran as a Fed governor.
• 🔍 Concerns exist about the integrity of US economic data due to politically motivated appointments, particularly regarding CPI readings.
• ⏳ While institutional inertia may limit concerns in the short term, the long-term integrity of data could be questioned, especially after Trump leaves office.

Federal Reserve Influence and Future Policy

• ⚡ Steven Moran's past statements suggest Trump's policies are disinflationary, potentially pushing the Fed towards more easing.
• 🏦 Moran's appointment may solidify the view for additional easing, with at least two cuts likely, and potentially a third cut due to labor market softness.
• 🏛️ Questions arise about Trump's potential tactic of reordering the Fed voting system to gain greater influence, though institutional credibility is expected to largely remain intact.