• Treasury Secretary Scott Bessent suggests a delayed Fed rate cut could lead to a more aggressive move in September.
  • Markets now price only a 5% chance of a July cut, with expectations shifting to September amid mixed inflation signals.
  • Political pressure mounts as President Trump criticizes Fed Chair Powell's cautious stance, fueling speculation about leadership changes.

Fed's Next Move Hinges on Data—and Politics

U.S. Treasury Secretary Scott Bessent has floated the possibility of a larger Federal Reserve rate cut in September if the central bank holds off on easing at its late July meeting. His comments come as markets sharply dial back expectations for a July move, with traders now assigning just a 5% probability to an imminent cut, according to recent pricing data.

"If they don't act now, the September cut might need to be more substantial," Bessent said, pointing to slowing growth forecasts and the economic impact of President Trump's tariff policies. The administration maintains the tariffs aren't inflationary, but Fed officials have cited them as a complicating factor in their inflation calculus.

Powell's Tightrope Walk

Fed Chair Jerome Powell has emphasized a data-dependent approach, telling reporters after last month's Sintra Conference that policymakers need "more evidence" of cooling inflation before acting. The Fed's preferred PCE inflation gauge remains stubbornly above its 2% target, while June's strong jobs report added another layer of complexity by showing persistent labor market strength.

Behind the scenes, sources say White House frustration with Powell is growing. Trump has openly criticized the Fed chair's reluctance to cut rates and is reportedly considering potential replacements—a move that would test the central bank's traditional independence.

Market Calculus Shifts

With July action now seen as unlikely, investors are repositioning for a potential September pivot. Goldman Sachs analysts predict up to three cuts this year if inflation moderates, while Bessent's comments suggest the delay could force the Fed's hand toward more dramatic easing later.

For borrowers and businesses, the extended wait means continued pressure from high rates. Mortgage applications have slumped to multi-year lows, and corporate debt refinancing costs remain elevated—trends that could accelerate if September brings the larger cut Bessent anticipates.

*Correction: An earlier version misstated the current federal funds rate range. It is 4.25–4.50%, not 5.25–5.50%.