Trump pushes for 1% interest rates, but Fed’s Powell signals a likely 25 basis point cut in September, citing steady 4.1% unemployment and 2.6% inflation.
Donald Trump, the President of the United States, has once again expressed his opinion on the appropriate level of interest rates. Despite reports that the administration is interviewing 11 candidates, the president also disclosed his intention to appoint the successor to Fed Chair Jerome Powell soon. In the interim, the probability of a Federal Reserve rate cut in September has reached a new high.
Trump’s Statement Regarding Interest Rates in the Context of Fed Rate Cut Expectations
During his visit to the Kennedy Center, the U.S. president expressed his conviction that interest rates should be reduced by three or four points, resulting in a rate of 1%. He observed that the U.S. economy persevered despite the Federal Reserve’s refusal to lower interest rates.
Additionally, Trump declared that he would appoint a new Federal Reserve Chairperson in advance, even though Powell’s term concludes in May of the following year. The president further stated that the shortlist has been reduced to three to four names. He will propose a candidate who is unequivocally in favor of a Federal Reserve rate reduction.
CoinGape had previously disclosed that 11 candidates are on the list to succeed Powell. Treasury Secretary Scott Bessent, who is responsible for the screening process, also verified that he had broadened his search for candidates who could succeed the Fed Chair.
Powell’s successor is anticipated to be Chris Waller. For now, Kevin Warsh and Kevin Hassett are the second and third most likely candidates to assume the role of Federal Reserve chair, respectively. It is essential to mention that Trump had previously stated that he had “two Kevins” and two other individuals on his short list.
The likelihood of a September cut has increased significantly
The probability of a 25-basis-point Fed rate cut in September has reached 99.9%, according to CME FedWatch data. The likelihood of the FOMC maintaining rates at their current level following the September 17 meeting is a mere 0.1%.
Intriguingly, Scott Bessent had encouraged the Federal Reserve to contemplate a 50 basis point rate reduction in September. In a Bloomberg interview today, he reiterated this point, stating that the initial reduction should be 50 basis points in September.
He also observed that interest rates should have been reduced by 150 to 175 basis points by this point. He asserted that a Federal Reserve rate reduction would have occurred sooner if the data had been more accurate. This is likely to encompass the U.S. employment data, which had previously indicated that the labor market was robust.
Nevertheless, the July data indicated that nonfarm payrolls increased to 73,000, which was below the anticipated figure of 147,000. In the interim, the data for May and June were revised downward from 144,000 and 147,000, respectively, to 19,000 and 14,000.