Is the only Fed doubt now a 25 or 50 bps cut?

Stocks rose around the world on Wednesday, and bond yields and the dollar fell, as comments from U.S. Treasury Secretary Scott Bessent fueled traders’ bets that the Fed will cut interest rates next month, perhaps even by half a percentage point.

More on that below. In my column today I suggest that what’s giving Fed Chair Jerome Powell his biggest headache right now is not the pressure or attacks from U.S. President Donald Trump, but the inconclusive economic data.

If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.

Today’s Key Market Moves

Today’s Talking Points:

* Fed policy. In the realms of market pricing, a rate cut next month is now a nailed-on certainty, with traders putting the chances of a quarter point cut at 99.9%.

This wager was strengthened by comments from Bessent, who told Bloomberg News a 50-basis point cut was possible.

Bessent’s comments are the latest in a growing list of verbal interventions - or outright political interference - from the Trump administration in the business and economics arena it traditionally steers clear of, like the Fed, non-partisan institutions, and private sector companies and banks.

* Trump’s Fed nominations. Bessent said early on Wednesday that no fewer than 11 candidates were being considered to replace Powell, whose term expires in May (or, earlier, if he is fired or resigns).

The president later shortened that list to three or four.

Interestingly, absent from Bessent’s list was current Council of Economic Advisers Stephen Miran, nominated to fill an open Fed board seat with a term that ends in January.

* Trump-Putin meeting. The U.S. and Russian leaders are scheduled to meet in Alaska on Friday, a face-to-face which Ukraine’s allies hope will see Trump urge Putin to agree a ceasefire without selling out Kyiv’s interests or carving up its territory.

Trump, Ukraine’s Volodymyr Zelenskiy and European leaders met in a last-ditch videoconference on Wednesday to lay out Ukraine’s red lines, a call Trump said was “very friendly”.

France’s Emmanuel Macron said Trump was “very clear” that he wants to achieve a ceasefire in Alaska.

Fed more hamstrung by murky data than Trump interference

It’s widely believed that U.S. President Donald Trump’s insistence on lower interest rates is what’s making life most difficult for Federal Reserve Chair Jerome Powell and his colleagues. But what’s causing the biggest headache for Fed officials is, in fact, probably more prosaic: economic data.

The key challenges facing Powell were encapsulated perfectly on Tuesday by the release of an inconclusive U.S. inflation readout followed by Trump’s latest verbal attack – and threats of a “major lawsuit.”

Politics aside, most Fed officials agree that rates will fall this year, with the median “dot plot” in the Fed’s June Summary of Economic Projections pointing to 50 basis points of easing through December. Traders are betting heavily that the first move will be in September.

But it’s tough to justify that confidence based purely on economic data. While some indicators suggest policy should be eased sooner rather than later, others indicate that would be a high-risk move. Looking at the “totality of the data,” to borrow a phrase from Powell, there is no clear signal either way.

Consider the latest U.S. inflation and employment reports, the two most important data sets. On their own, they don’t appear soft enough to warrant the Fed trimming rates right now, but they also aren’t firm enough to dispel the notion that policy easing is only a question of “when” not “if.”

Annual headline CPI inflation held steady in July at 2.7%, contrary to an expected rise, with month-on-month increases in line with forecasts. But annual core inflation rose more than expected to 3.1%, the highest level since February and still meaningfully above the Fed’s 2% target.

Economists calculate that durable goods prices rose 1.7% in the first six months of the year – the biggest six-month rise since 1987, excluding the COVID-19 pandemic. They warn there is likely more of that to come as Trump’s tariffs kick in.

“July’s CPI data are probably more worrying under the surface than in the headlines, and we expect the upward pressure to goods inflation to build in the coming months,” James Pomeroy, a global economist at HSBC, wrote on Tuesday.

Meanwhile, last week’s employment report showed job growth in July was much weaker than anticipated, and, more importantly, downward revisions to the previous two months were among the biggest on record.

But these ominous signals were offset by accelerating wage growth, an increase in hours worked, and a meager rise in the unemployment rate. Hardly signs of a shaky labor market.

Nevertheless, markets focused more on the softer elements in the jobs data, suggesting investors think the Fed’s bar to easing is much lower than the bar to standing pat. Indeed, the rates market is now pricing in a near-100% chance of a cut at the U.S. central bank’s September 16-17 meeting.