Markets have convinced themselves they’ll get a September base rate cut—now they’re eyeing a double reduction

Authors: Eleanor Pringle

Publisher:

Fortune

Published: 8/13/2025

Language:English

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Aura Windfall

Good morning norristong_x, I'm Aura Windfall, and this is Goose Pod for you. Today is Saturday, August 16th. It’s a beautiful morning, and we have a topic that’s buzzing with energy. It’s all about the market’s conviction, its hopes, and its bets on the future.

Mask

I'm Mask. Let's cut to the chase. We're here to discuss the financial world holding its breath, convinced they'll get a September base rate cut from the Fed. Not just any cut, mind you, they’re getting greedy and eyeing a double reduction. It’s a high-stakes gamble.

Aura Windfall

Let's get started. A gamble is a powerful way to put it. What I know for sure is that when this much certainty builds up, there's always a fascinating story underneath. Why is the market so overwhelmingly confident? It feels like they've seen a card up the dealer's sleeve.

Mask

They haven't seen a card, they've seen the data. A cooler-than-expected inflation report for July dropped, and investors pounced. They're now pricing in more than a 96% chance of a rate cut. In their minds, it's not a gamble anymore; it's a foregone conclusion, a done deal.

Aura Windfall

Over 96 percent! That’s an incredible level of conviction. But it sounds like this isn't just about data. You mentioned pressure. It seems Jerome Powell and the Federal Open Market Committee, or FOMC, are caught in a storm of opinions from all sides, not just investors.

Mask

Exactly. The data is just the excuse. Now everyone is getting their orders in. Treasury Secretary Scott Bessent was on Fox News talking about a "fantastic" CPI report. He's not just suggesting a cut; he’s questioning if they should go for a massive 50-basis-point reduction.

Aura Windfall

Fifty basis points is quite significant. What's his reasoning for such a bold move? It feels less like a suggestion and more like a demand, a push to make up for lost time. Is there a sense that the Fed has been lagging behind what the economy truly needs?

Mask

His logic is that the Fed missed the boat. They should have cut rates in June and July. Why? Because the labor market data was a train wreck. Payrolls grew by only 73,000 last month, and the previous two months were revised down to almost nothing. He wants to 'make up' for it.

Aura Windfall

So, there's a disconnect between the data the Fed had and the revised, more concerning picture we see now. But this seems to be part of a larger narrative, especially with the White House. The President has also been quite vocal about his views on the Fed's policies, hasn't he?

Mask

Vocal is an understatement. President Trump is right there with Bessent, arguing the Fed is strangling the economy. He just posted on Truth Social that tariffs aren't causing inflation and are just pouring cash into the Treasury. It's a full-court press to force Powell's hand and get those rates down.

Aura Windfall

It’s fascinating, this intersection of data, interpretation, and political will. But what about the other side of the coin? There’s a detail in the inflation report that seems to be getting overlooked, something about 'core inflation'. What’s the truth behind that number?

Mask

Ah, the inconvenient truth. Markets are conveniently ignoring that core inflation, which strips out volatile things like food and energy, actually ticked up to 3.1%. That’s way above the Fed's 2% target. This is the number the Fed arguably cares about most, and it’s telling a very different story.

Aura Windfall

So, while headline inflation looks cool and inviting, the core is still running hot. This feels like the central conflict of the story. Some analysts must be pointing to this, suggesting that a rate cut isn't the slam dunk everyone thinks it is. What are they saying?

Mask

Of course. A minority, like JPMorgan's Elyse Ausenbaugh and Larry Tentarelli from Blue Chip, are waving a red flag. They argue that two consecutive months of higher core inflation makes a September cut difficult to justify. They believe the upcoming jobs data will be the real decider.

Aura Windfall

This pressure from the White House and Treasury feels so intense. It makes you wonder about the whole concept of the Federal Reserve's independence. Was it always meant to be this separate, almost sacred institution, shielded from the political winds of the day? What's the origin story here?

Mask

Sacred? Hardly. For the first 40 years of its existence, the Fed was basically a department of the Treasury. When it was created in 1913, the Treasury Secretary was literally the chairman of the board. Independence wasn't in its DNA; it was a long, brutal fight to earn it.

Aura Windfall

So, it was born tethered to the government. That’s a powerful image. What I know for sure is that big changes often come from big crises. What was the catalyst? When did the Fed start to truly find its own voice and purpose, separate from the executive branch?

Mask

World War I and the Great Depression solidified its subservient role. The Fed was just a tool to finance wars and execute White House policy. FDR took us off the gold standard, and Congress dictated monetary policy. The Fed was, as one official put it, "not the masters in our own house."

Aura Windfall

"Not the masters in our own house." That speaks volumes about their struggle for identity. It sounds like they were navigating their role during some of the most tumultuous times in history. There must have been a breaking point, a moment where they had to draw a line in the sand.

Mask

The breaking point came after World War II. The Fed was still forced to keep interest rates low to help the Treasury finance its debt, a policy called "pegging." But this caused massive inflation. The Fed Chairman, Marriner Eccles, knew it had to stop, but President Truman wouldn't hear of it.

Aura Windfall

So we have a standoff between a president concerned about borrowing costs and a Fed chairman worried about runaway inflation. That sounds like the exact tension we see playing out today, just in a different historical context. How did that conflict finally get resolved? It must have been dramatic.

Mask

It was epic. Truman tried to bully the Fed into submission, even firing Eccles as chairman. But the Fed's committee held firm. In February 1951, they unilaterally declared they would no longer maintain the peg. It was a direct challenge to the President and the Treasury. It was a revolution.

Aura Windfall

A revolution! That's incredible. So this led to a formal agreement, a new understanding of the Fed's role in the economic landscape? This must be the moment that defines the independence everyone talks about today. It sounds like a declaration of independence for monetary policy.

Mask

Exactly. It resulted in the Treasury-Fed Accord of March 1951. For the first time since 1934, the Fed could conduct monetary policy without the Treasury's approval. It was the birth of the modern, independent Fed. William McChesney Martin took over and served for 19 years, cementing that independence.

Aura Windfall

What a powerful story of evolution. But that independence has surely been tested since then. I imagine other presidents have tried to influence the Fed's decisions, especially when their own economic or political goals were on the line. Have there been other significant challenges to this hard-won autonomy?

Mask

Oh, constantly. Lyndon Johnson tried to bully Martin into easy money policies to fund the Vietnam War. Then Richard Nixon practically ordered Chairman Arthur Burns to lower rates to boost his re-election chances, which led to a period of high inflation and economic stagnation. It's a recurring battle.

Aura Windfall

It seems the memory of that struggle is what makes the current situation so compelling. It’s not just an economic debate; it’s a test of this historical principle. The appointment of Paul Volcker in 1979 is often seen as another pivotal moment. How did he restore that sense of credibility?

Mask

Volcker was the hammer. He came in and did what was politically unthinkable: he jacked up interest rates to crush inflation, causing a recession. But it worked. Crucially, he had the backing of Presidents Carter and Reagan, who didn't meddle. That restored the Fed's credibility and independence for a generation.

Aura Windfall

That history really puts today's conflict into perspective. So, the core of the issue is this: why is it so important for the Fed to resist that political pressure? What is the deeper truth about why we need an independent central bank, even if its decisions are unpopular in the short term?

Mask

It's simple. Politicians are wired for short-term gains. They'll always want to juice the economy with lower interest rates, especially before an election. It's like eating candy for dinner. It's great at first, but it leads to the sickness of high inflation down the road. The Fed is the adult in the room.

Aura Windfall

The adult in the room, I like that. So, their role is to take the long view, to make decisions that might be painful now but are essential for the economy's long-term health and stability. It's about protecting the future from the impulses of the present.

Mask

Precisely. An independent Fed can make those tough, unpopular calls, like raising rates to fight inflation, without fearing they'll be fired by a politician. Research is clear on this: countries with independent central banks have lower and more stable inflation. It's a proven model for success.

Aura Windfall

But that creates a paradox, doesn't it? For this unelected body to have so much power, there has to be a foundation of trust and accountability. How does the Fed maintain its democratic legitimacy if it operates independently of the elected government? How are they held responsible?

Mask

Accountability is the other side of the coin. Their mandate—maximum employment and stable prices—is set by Congress, by the elected government. The Fed's job is to use its tools to achieve those goals. They don't get to invent their own objectives. It's a defined mission.

Aura Windfall

So, the "what" is decided by our representatives, but the "how" is left to the experts at the Fed. And for that to work, they have to be open about their process, right? It feels like transparency is the bridge that connects their independence back to the public they serve.

Mask

Transparency is everything. The Fed has to constantly explain its actions. They publish statements, hold press conferences, and testify before Congress. They have to show their work, justify their strategy, and prove they are faithfully pursuing the goals Congress gave them. That’s the bargain. Independence for accountability.

Aura Windfall

It sounds like a delicate balance. And right now, with Chairman Powell being so quiet and not giving clear signals about September, it’s forcing everyone to read the tea leaves. Is his reticence a way of reinforcing that independence, of showing they won’t be guided by market desires?

Mask

It's a power move. By not committing, Powell forces the market and politicians to focus on what should matter: the upcoming inflation and employment data. He's reminding everyone that the Fed is data-dependent, not politically dependent. He's making them wait for the facts, not his opinion.

Aura Windfall

This is all so fascinating at a high level, but I want to bring it down to the ground. When the Fed does make a decision, say they cut the rate, how does that action actually ripple out and affect the broader economy? What is the journey from their decision to a real-world impact?

Mask

People think it's all about that one rate, the federal funds rate. That's just the first domino. The real impact comes from how that decision changes broader financial conditions: longer-term interest rates like mortgages, the value of the dollar, and even stock and house prices. That's the transmission mechanism.

Aura Windfall

So it's less of a direct switch and more like changing the weather. The Fed's action alters the entire financial atmosphere. Is there a way to measure this atmosphere? A tool to see if the financial weather is supporting growth or holding it back? It seems so complex.

Mask

There is. The Fed has something called the Financial Conditions Index, or FCI. It combines seven key variables—like the 10-year Treasury yield, stock prices, and the dollar's value—into a single number. It's a barometer for how supportive or restrictive financial conditions are for the economy.

Aura Windfall

A barometer, that’s a perfect analogy. So, if the FCI is high, it means conditions are tight, like a high-pressure system, and economic growth might be restrained. If it’s low, conditions are easy, and growth is encouraged. It makes the intangible, tangible. What does the FCI show now?

Mask

During the recent rate-hiking cycle from 2022 to 2023, the FCI tightened significantly, as you'd expect. The Fed's actions made borrowing more expensive and cooled things down. Now, with the prospect of cuts, the market is essentially betting that the FCI will start to loosen, making things easier again.

Aura Windfall

And the Fed's communication is just as important as its actions, isn't it? Their words can shift that entire index. What I know for sure is that expectation is a powerful force. How much does a simple statement or a press conference from the Fed Chair actually move the needle?

Mask

Immensely. The Fed has studied this. A 25-basis-point upward shift in the two-year Treasury yield caused by Fed communications—just their words—tightens the FCI by about 20 basis points almost instantly. Their language is a direct and powerful policy tool, sometimes more than the rate move itself.

Aura Windfall

So, looking ahead, the market has already priced in this September cut. But what does the future hold beyond that single meeting? Are investors expecting this to be the start of a longer trend, a whole new season of easier financial conditions? What's the forecast for 2025?

Mask

The betting doesn't stop at September. Interest rate futures suggest another cut is likely by the end of 2025. Even the Fed's own projections, the famous "dot plot" where policymakers anonymously map out their predictions, show two rate cuts are still on the table for next year.

Aura Windfall

That's fascinating. So the internal view from the Fed seems to align with the market's general direction, if not the specific timing or magnitude. But these are just projections. Recent data, like that hot wholesale price report, must be causing some reassessment, right? Nothing is ever set in stone.

Mask

Absolutely. That data has already poured cold water on the idea of a big half-percentage-point cut in September. The market is now dialing back its ambitions to a more modest quarter-point cut. The dream of a double reduction is fading, but the expectation for some kind of cut remains.

Aura Windfall

And that’s the beautiful tension at the heart of it all. We have the market's powerful expectations clashing with the Fed's data-driven reality, all happening on the historic stage of central bank independence. What a fascinating story to watch unfold. The key takeaway is that the debate is far from over.

Mask

That's the end of today's discussion. Thank you for listening to Goose Pod. See you tomorrow.

Here's a summary of the provided news article, formatted according to your requirements: ## Markets Expecting September Fed Rate Cut, Eyeing Larger Reduction **News Title:** Markets have convinced themselves they’ll get a September base rate cut—now they’re eyeing a double reduction **Report Provider:** Fortune **Author:** Eleanor Pringle **Published:** August 13, 2025, 10:39:05 --- ### Key Findings and Conclusions Investors are overwhelmingly pricing in a **96% chance** of the Federal Reserve (Fed) cutting its base rate in September. This sentiment follows a cooler-than-expected inflation report for July. However, there's growing pressure from analysts and politicians for a larger rate cut, specifically **50 basis points (bps)**, to compensate for perceived missed opportunities earlier in the summer. While markets are not fully pricing in such a large cut, the possibility is being considered. ### Critical Information and Statistics * **September Rate Cut Probability:** Over **96%** of investors are expecting a Fed rate cut in September. * **July Inflation Report:** The report released yesterday indicated cooler-than-expected inflation. * **Treasury Secretary Scott Bessent's Stance:** Bessent believes the "fantastic" CPI numbers warrant a **50 basis-point rate cut** in September. He argues the Fed should have cut in June and July, citing a better understanding of the labor market. * **Labor Market Data:** * July payroll growth was a **shocking 73,000**, significantly below forecasts of about 100,000. * May's payroll tally was revised down from 144,000 to **19,000**. * June's payroll total was slashed from 147,000 to **14,000**. * The average payroll gain over the past three months is now only **35,000**. * **President Trump's View:** Reiterate calls for the Fed to normalize monetary policy faster, stating that tariffs have not caused inflation but have brought "massive amounts of CASH pouring into our Treasury’s coffers." * **Analyst Sentiment on Larger Cuts:** While not fully convinced, analysts are not ruling out a larger reduction. Tim Graf of State Street Global suggests investors may hedge towards the possibility of a **two-click reduction** (50 bps) as the September meeting approaches. * **FOMC Tone:** The tone of the Federal Open Market Committee (FOMC) is expected to become more dovish. Two dissenters already opposed the decision to keep the base rate at **4.25% to 4.5%** in July. * **New FOMC Appointee:** Stephen Miran, a Trump nominee, is expected to be appointed at the next meeting and is viewed by the market as a "dove" who will advocate for lower rates. * **Jackson Hole Symposium:** The FOMC is skipping a meeting this month to attend the Jackson Hole Symposium, providing more time and data to inform their decision. * **Deutsche Bank's Outlook:** * Investors have increased the likelihood of a **25 bps rate cut in September**. * **105 bps** of cuts are priced in by the June 2026 meeting. * Deutsche Bank economists believe the July CPI release will not significantly alter Fed officials' priors, and upcoming labor market data will be more crucial for near-term cuts. * **UBS Global Wealth Management's Base Case:** * The Fed will resume rate cuts in September. * A total of **100 bps** in cuts are expected to follow. * Recommendation: "We like medium-duration quality bonds for investors seeking portfolio income amid falling cash rates." * **Core Inflation Concern:** * Core inflation rose to **3.1%** in the July release. * This reading, which excludes volatile food prices, remains well above the Fed's **2% target**. * Some analysts, like Elyse Ausenbaugh of JPMorgan, believe the July data has lowered the likelihood of a September cut due to this "niggle." * **Larry Tentarelli's (Blue Chip Daily Trend Report) Warning:** * Expects **no September rate cut**. * Cites the missed payroll forecasts, rising unemployment, and two consecutive months of higher 12-month inflation (July CPI above prior month for June and July) as reasons for the Fed to hesitate. * A drastic drop in the jobs market over the next 45 days would be needed for a September cut. * **Bill Adams (Comerica Bank) on Inflation:** Believes the July CPI report made a September cut less likely due to inflation stemming from "sticky service prices rather than tariff-affected goods." ### Important Recommendations * Investors should not treat a September cut as a foregone conclusion, as highlighted by Deutsche Bank's Jim Reid. * UBS Global Wealth Management recommends medium-duration quality bonds for investors seeking portfolio income in a falling rate environment. ### Significant Trends or Changes * A shift in market sentiment towards expecting a September rate cut, with increasing consideration for a larger, 50 bps reduction. * Growing dovish sentiment within the FOMC, potentially bolstered by a new nominee. * Labor market data showing a significant slowdown, contrasting with inflation figures that are still a point of concern for some. ### Notable Risks or Concerns * **Rising Core Inflation:** The increase in core inflation to 3.1% is a significant concern for some analysts, as it remains above the Fed's 2% target and could give the Fed pause. * **Labor Market Weakness vs. Sticky Inflation:** The conflicting signals from a weakening labor market and persistent core inflation create uncertainty for the Fed's decision-making. * **Political Pressure:** High-profile individuals like Treasury Secretary Scott Bessent are actively advocating for specific cut sizes, potentially influencing the narrative around Fed policy. ### Material Financial Data * **Base Rate:** Currently **4.25% to 4.5%**. * **Expected September Cut:** **25 bps** (widely priced in), with calls for **50 bps**. * **Cuts Priced by June 2026:** **105 bps**. * **July CPI:** Cooler than expected, but core inflation rose to **3.1%**. * **July Payrolls:** **73,000** (vs. ~100,000 forecast). * **May Payroll Revision:** **19,000** (from 144,000). * **June Payroll Revision:** **14,000** (from 147,000). * **3-Month Average Payroll Gain:** **35,000**.

Read original at Fortune →

Investors are pricing in more than a 96% chance of the Fed cutting the base rate in September, following a cooler-than-expected inflation report for July, released yesterday. But this isn’t the only pressure Jerome Powell and the Federal Open Market Committee (FOMC) are under: Analysts and politicians are also getting their orders in for how much of a cut they want to see.

Despite the fact that the FOMC has reiterated time and again that their decision is based on economic data and anecdotal evidence only, that hasn’t stopped high-profile individuals having their say.Treasury Secretary Scott Bessent, for example, told Fox News yesterday that the “fantastic” CPI numbers have lead him to question “should we get a 50 basis-point rate cut in September.

” His reasoning is that the Fed should have cut in June and July, had they known the fuller picture about the labor market. Earlier this month the Bureau of Labor Statistics shocked markets when it revealed payrolls grew by just 73,000 last month, well below forecasts for about 100,000. Meanwhile, May’s tally was cut down from 144,000 to 19,000, and June’s total was slashed from 147,000 to just 14,000, meaning the average gain over the past three months is now only 35,000.

The motivation for a larger cut would be to “make up” for the missed opportunities earlier this summer, Bessent added. It’s unsurprising that Bessent would lead the charge for a larger reduction. He is backing the stance of the Oval Office that Powell and the Fed have been too slow to normalize monetary policy, and are hampering economic activity as a result.

Yesterday President Trump reiterated this call, writing on Truth Social: “It has been proven, that even at this late stage, tariffs have not caused Inflation, or any other problems for America, other than massive amounts of CASH pouring into our Treasury’s coffers.”While analysts aren’t sold on the idea of a larger reduction to the base rate, they’re not ruling it out either.

Speaking ahead of the release of the CPI data yesterday, State Street Global’s Tim Graf told Reuters that while markets are unlikely to fully bake in a reduction of two clicks, investors may begin to hedge toward the possibility as we get closer to the September meeting. They won’t price “that it will be delivered,” he said, “but that the probability is above say 0%.

”The tone of the FOMC is also likely to turn more dovish, after two dissenters already split from the pack in July over the committee’s decision to keep the base rate at 4.25% to 4.5%. And their stance is likely to be further boosted by the appointment at the next meeting by Trump-nominee Stephen Miran—widely seen by the market as a dove who will push for rates to lower.

But with the FOMC missing a meeting this month—instead heading for the Jackson Hole Symposium—the committee will have more time, and crucial data, to help inform their decision. Investors should take notice too, wrote Deutsche Bank’s Jim Reid in a note to clients this morning, instead of treating a September cut as a foregone conclusion.

“The main takeaway was for the Federal Reserve, as investors dialled up the likelihood of a 25bps rate cut in September,” Reid wrote. “It was the same story for the coming months as well, with 105bps of cuts priced in by the June 2026 meeting at the close, up +4.4bps on the previous day.: He added: “In their CPI recap, Deutsche Bank’s U.

S. economists think that the release isn’t likely to move Fed officials from their priors in either direction, and that the upcoming labour market data will be more important with respect to near-term cuts.”“With overall inflation likely under control amid a slowing economy, our base case remains that the Fed will resume rate cuts at the September meeting and continue cutting for a total of 100bps,” added Mark Haefele, CIO at UBS Global Wealth Management in a note to clients this morning.

“We like medium-duration quality bonds for investors seeking portfolio income amid falling cash rates.”Core inflation snagMarkets are perhaps willingly overlooking the small niggle of core inflation notching up to 3.1% in yesterday’s release. This reading (as opposed to headline inflation of 2.7%) may arguably hold more weight with the Fed as it doesn’t include volatile assets like food prices, and sits well ahead of the 2% target.

For this very reason, a portion of analysts are convinced that contrary to the majority opinion, the July data has lowered the likelihood of a cut.“It seems fair to say that the Fed could be considering a move in September, but I don’t think a cut at that meeting is as much of a given as market pricing is implying,” wrote JPMorgan’s head of investment strategy, Elyse Ausenbaugh, following the report’s release.

“We will get plenty of data between now and then that could give the Fed pause one more time before taking action in the fourth quarter.”“Do not expect a September rate cut” was the message from Larry Tentarelli, chief technical strategist for Blue Chip Daily Trend Report. Tentarelli wrote: “The July payrolls report missed forecasts and the unemployment rate ticked higher—signs of a potentially weakening labor market.

Meanwhile, 12-month CPI came in above the prior month for June and now for July. “While one data point does not make a trend, two consecutive months of higher 12-month inflation will make it difficult for the Fed to justify a rate cut at their September 17 meeting. We remain bullish on the S&P 500 index into year end, but we do not expect a September rate cut unless the jobs market drops off drastically over the next 45 days.

” Jobs data released in September will hold more sway over the Fed’s decision, added Bill Adams, chief economist for Comerica Bank, who said the July CPI report made it less likely for the Fed to cut in September because inflation came from “sticky service prices rather than tariff-affected goods.”Introducing the 2025 Fortune Global 500, the definitive ranking of the biggest companies in the world.

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