{"id":57820,"date":"2025-08-09T22:05:26","date_gmt":"2025-08-09T22:05:26","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/57820\/"},"modified":"2025-08-09T22:05:26","modified_gmt":"2025-08-09T22:05:26","slug":"markets-are-near-certain-of-a-september-rate-cut-as-more-presidents-turn-dovish","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/57820\/","title":{"rendered":"Markets are near certain of a September rate cut as more presidents turn dovish"},"content":{"rendered":"

For the majority of 2025, analysts and investors have begrudgingly backed the stance of Jerome Powell and the Federal Open Market Committee (FOMC). Looking at the same economic data as the Fed, they have thus far drawn the conclusion that it hasn\u2019t been time to cut<\/a>.<\/p>\n

Until now\u2014or more specifically, until Friday. <\/p>\n

Last week\u2019s bombshell jobs report from the Bureau of Labor Statistics threw the dual mandate of the Fed (inflation at 2% and maximum employment) into sharp focus. The labor market is doing considerably worse than previously realized, to the tune of 258,000 jobs stripped from earlier estimates and unemployment pushing up to 4.2%.<\/p>\n

With two members of the FOMC having dissented from the decision to keep the rate at the current level of 4.25% to 4.5%<\/a>, more regional bank presidents are now suggesting a change of tune. <\/p>\n

Neel Kashkari, president of the Minneapolis Fed, is generally seen as a hawkish member of the Fed, but said in an interview yesterday<\/a> it may now be time to cut: \u201cThere\u2019s two categories of data that I\u2019m focused on: There\u2019s a bunch of data that I know and that I\u2019ve got confidence in, and there\u2019s data that I don\u2019t know and we\u2019re not going to know for a while.<\/p>\n

\u201cThe data that I think we know is that the economy is slowing \u2026 and that means in the near term it may become appropriate to start adjusting the Federal funds rate.\u201d<\/p>\n

He was echoed by San Francisco Fed president Mary Daly, who told the Anchorage Economic Summit yesterday in prepared remarks<\/a>: \u201cMy own assessment is that the risks to our employment and inflation goals are roughly balanced. Inflation, absent tariffs, has been gradually trending down, and with a slowing economy and ongoing restrictive monetary policy, should continue to do so. Tariffs will boost inflation in the near term, but likely not in a persistent way that monetary policy would need to offset.<\/p>\n

\u201cAt the same time, the labor market has softened.\u00a0And I would see additional slowing as unwelcome, especially since we know that once the labor market stumbles, it tends to fall quickly and hard. All this means that we will likely need to adjust policy in the coming months.\u201d<\/p>\n

Meanwhile Federal Reserve governor\u00a0Lisa Cook noted at a Boston Fed<\/a> event that the jobs report was \u201cconcerning,\u201d adding: \u201cThese revisions are somewhat typical of turning points.\u201d<\/p>\n

More important, neither president Kashkari nor president Daly\u2014nor governor Cook\u2014was among the dissenters at the July meeting. With governor Christopher Waller and FOMC member Michelle Bowman already lobbying for a cut, the ranks of those on the dovish end of the spectrum are growing by the day.<\/p>\n

\u201cPricing of a September Fed rate cut ticked up from 90% to 95% amid the shifting rhetoric,\u00a0with 60 bps of cuts priced by the December meeting (+2.0 bps on the day),\u201d noted Deutsche Bank\u2019s Jim Reid to clients on Thursday morning.<\/p>\n

While two-year Treasuries bumped slightly on the news, yields are moving still higher in the long term with the 10-year up to 4.24% and the 30-year<\/a> up to 4.8%.<\/p>\n

Per the FedWatch tool<\/a> from derivatives platform CME Group<\/a>, 93.4% of the market is expecting the base rate to go down to 4% to 4.25% in September\u2014down one click on the current rate. Only 6.6% of investors expect a further hold.<\/p>\n

Goldman Sachs did have a potential counter to this seemingly foregone conclusion. Chief U.S. economist Jan Hatzius, wrote earlier this week his call is three consecutive cuts of 25 points in September, October, and December (followed by two more 25 bp cuts in 2026 H1), but cautioned: \u201cA delay is possible if upcoming reports show bigger-than-expected price hikes and a rebound in the labor market.<\/p>\n

\u201cBut a 50 bp cut in September is also possible if the unemployment rate rises again in the August employment report or initial jobless claims increase from their still-low level. Even after Friday\u2019s front-end rally, our funds rate forecast remains below market pricing, especially on a probability-weighted basis.\u201d<\/p>\n

Could have been two <\/p>\n

Had the Fed learned of the \u201cbombshell\u201d jobs report in real time, Professor Jeremy Siegel believes the Fed would have not only cut this month, but by two clicks.<\/p>\n

The emeritus professor of finance at the Wharton School of the University of Pennsylvania wrote in a column for WisdomTree, where he is senior economist, that the Fed may have even been tempted to lower by 50 bps.<\/p>\n

\u201cMy view following Chair\u202fPowell\u2019s press conference last week was that Powell was too hawkish, even before we knew about Friday\u2019s data,\u201d professor Siegel wrote<\/a>. \u201cI expect the first 25 basis point rate cut at the Sept. 18th FOMC meeting, followed by identical moves in November and December, taking the Fed funds rate to 3.58% by year\u2011end.<\/p>\n

\u201cA slower cadence, a \u2018firm but flexible glide path,\u2019 keeps the committee\u2019s hawks on board while acknowledging that real activity is cooling; first\u2011half real GDP averaged only 1.2% at an annual rate, and forward indicators such as continuing claims are inching higher.\u201d<\/p>\n

Professor Siegel, like many other economists, are looking to the Jackson Hole symposium later this month for hints of an about-turn on monetary policy.<\/p>\n

But even then, Siegel\u2014like some other notable economists\u2014still believe Fed Chair Jerome Powell should step down before his term is up.<\/p>\n

\u201cThe Fed\u2019s independence has long been one of the cornerstones of a well-functioning U.S. economy,\u201d Siegel noted last month.<\/a> \u201cBut in today\u2019s politically charged environment, that very independence could face a greater threat if Powell remains in place and the economy falters in the second half of the year \u2026 If growth slows and Powell hasn\u2019t moved aggressively enough on rate cuts, Powell will become the scapegoat.<\/p>\n

\u201cIn that case, a Republican-led Congress, already skeptical of the central bank, could impose serious structural restrictions, including changes to the Fed\u2019s governing mandate or the president\u2019s power to remove the chair. We must remember: The Fed is a creature of Congress. It has no constitutional status, and its rules can be rewritten.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"For the majority of 2025, analysts and investors have begrudgingly backed the stance of Jerome Powell and the…\n","protected":false},"author":2,"featured_media":57821,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[45,49,48,1376,1823,38243,2071,135,1375,100,125],"class_list":["post-57820","post","type-post","status-publish","format-standard","has-post-thumbnail","category-markets","tag-business","tag-ca","tag-canada","tag-donald-trump","tag-fed","tag-fed-interest-rate","tag-federal-reserve","tag-inflation","tag-jerome-powell","tag-markets","tag-unemployment"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/57820","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=57820"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/57820\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/57821"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=57820"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=57820"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=57820"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}