The US Treasury Secretary called for a 50 basis point interest rate cut in September. The futures market is expected to have a probability of only 0.1%

The Zhitong Finance App learned that after inflation did not rebound sharply in July, US Treasury Secretary Bessent said in an interview with foreign media on Wednesday that the Federal Reserve should cut interest rates sharply by 50 basis points at the upcoming September interest rate meeting and begin a series of interest rate cuts. “If you look at any model, it shows that interest rates should be 150 to 175 basis points lower than the current level,” he said.

Bezent's remarks slightly raised the market's expectations for a one-time 50 basis point rate cut in September, but it is still at a very low level. According to the CME FedWatch tool, currently the market only assigns a 0.1% probability to this scenario, while foreign media estimates are slightly higher at 1.4%. In contrast, the 25 basis point rate cut in September has almost been completely digested by the market. Louis Navellier, founder of Navellier & Associates, also supports Bezent's views, but cautioned that the Fed may be worried that cutting interest rates too drastically will be interpreted by the outside world as a “signal of panic.”

A number of economists pointed out that the August non-farm payrolls data to be released on September 5 will be an important reference for the Federal Reserve's decision. If the data deteriorates significantly, especially when there is a decrease in jobs in the current month, and the June or July data is revised down to a negative value, while the unemployment rate rises from 4.2% to 4.4%, it is possible to push for a more drastic reduction in interest rates. However, PNC chief economist Gus Faucher believes that unless such a “very bad” situation occurs, the Fed is still likely to choose to cut interest rates by 25 basis points.

The US CPI rose 2.7% year on year in July, which is generally in line with expectations, easing concerns about uncontrolled inflation in the context of tariff increases. However, the core CPI growth rate reached 3.1% year on year, and the “super core CPI” excluding housing, energy, and food rose 0.5% month-on-month, to the second highest level in nearly 18 months. Omair Sharif, founder of Inflation Insights, pointed out that the price increase of core commodities was more widespread than in June, and the transmission effects of recent tariffs have been shown in most categories.

According to the economic forecast summary released by the Federal Reserve in June, core PCE inflation is expected to be 3.1% by the end of this year. At present, the core CPI has reached this level, and the impact of tariffs continues to penetrate. This may cause officials to be cautious about cutting interest rates more drastically while employment is slowing down. In July, only 73,000 new non-farm payrolls were added in the US, and the increase in employment in May and June was drastically reduced to 19,000 and 14,000, yet the unemployment rate remained at 4.2%.

Federal Reserve officials recently stated that although directors Bowman and Waller prefer to cut interest rates by 25 basis points, most members of the committee are still hawkish against the backdrop that inflation has been above the 2% target for 53 consecutive months. Richmond Federal Reserve Chairman Barkin said this week that he will adjust his policy position based on further clarification of the economic situation, but he did not release a clear signal of a shift towards dovish.

StoneX senior adviser Jon Hilsenrath pointed out that even if the July inflation data gives the Fed some room to cut interest rates, it does not mean that interest rates will be cut again in October. Currently, the futures market gives a 69% chance of cutting interest rates again in October, but he believes this expectation is “too optimistic”. It is estimated that the Fed may cut interest rates only twice this year, and the second time is more likely to occur in December.