US Treasury Secretary Pressures “Big Cut in September”… Caution Within the Fed
(Seoul = Yonhap News) Reporter Jung-Woo Hwang = There is increasing market expectation that the US will resume lowering its benchmark interest rate in September.
On the 13th (local time), according to the Chicago Mercantile Exchange’s (CME) FedWatch tool, the federal funds futures market is reflecting a 93.7% probability of a 25 basis points (bps) cut in the benchmark interest rate in September. A new 50 bps cut (big cut) probability has also emerged, standing at 6.3%. The prospect of a big cut is being raised.
Following a significant downward adjustment in employment figures on the 2nd of this month, the July Consumer Price Index (CPI) also suggested that tariffs have not yet had a significant impact on inflation, heightening expectations for a rate cut in September.
US Treasury Secretary Scott Besant pressured the Federal Reserve (Fed) once again for a rate cut by mentioning a big cut in September.
In an interview with Bloomberg TV on this day, Secretary Besant said, “We can expect a series of rate cuts starting with a 50 bps cut from September,” adding, “No matter what model you use, it probably needs to be 150-175 bps lower.”
He also stated, “If Fed officials had known the recently revised employment figures, they could have lowered rates in June and July.”
Just two days after the Fed held the benchmark interest rate steady at 4.25-4.50% for the fifth consecutive meeting on the 30th of last month, the US Department of Labor revised the job growth figures for May and June down by 258,000 from the initially announced data.
The market’s assessment was that the previously considered favorable employment situation might already have deteriorated.
The 7th of July CPI figures showed mixed results between the overall index and the core index.
The CPI rose by 0.2% from the previous month, a smaller increase than June’s 0.3%. It was up 2.7% compared to the same month last year, the same as in June.
Excluding the volatile food and energy sectors, the core CPI rose by 0.3% from the previous month, showing a larger increase than June’s 0.2%. Compared to the same period last year, it was up 3.1%, an increase from the 2.9% rise in June.
Accordingly, the stock market reacted with growing expectations that the Fed would lower the benchmark interest rate at the September meeting, confirming that the price shock from tariffs had not been significant as of July.
However, recent public comments from Fed officials show a somewhat different stance from these market expectations.
According to the Financial Times (FT), Austin Goolsbee, president of the Chicago Federal Reserve Bank and a voting member of the Federal Open Market Committee (FOMC), expressed a hawkish stance by telling reporters that the Fed might “struggle to bring inflation back to the 2% target.”
President Goolsbee stated, “Making sudden moves is the last thing the Fed should do,” and remarked, “I understand that processing information quickly is the business model of the market, but I don’t think that’s how central banks operate.”
He also noted that the job market is stronger than what the recently released July figures suggest.
He expressed concerns that some details of the inflation indicators imply that the Fed’s efforts to curb price pressures may no longer be on a “golden path,” stating, “If the high service price rise persists, we will find it difficult to return to 2%,” which interprets as a call for continued caution regarding inflation.
Jeffrey Schmid, president of the Kansas City Federal Reserve Bank, also stated, “Maintaining an appropriately restrictive monetary policy stance for the time being is suitable, as the economy is still retaining growth momentum, companies’ optimistic outlooks are increasing, and inflation is still above target.”
He added that the limited impact of tariff increases on inflation should be viewed as a basis for maintaining policy rather than an opportunity to ease the stance.
As a result, market attention is focused on the upcoming remarks by Fed Chairman Jerome Powell at the Jackson Hole Symposium on the 22nd.