Market will rally despite lofty valuations, says State Street's Michael Arone
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The Hill
an hour ago
- The Hill
Bessent calls for steep interest rate cuts
Treasury Secretary Scott Bessent said Wednesday that short term interest rates should be 1.5 to 1.75 percentage points lower than their current level, keeping up the administration's pressure campaign on the Federal Reserve. Bessent called for a half-point reduction in September at the next meeting of the Fed's interest rate-setting committee, starting a series of cuts that would lower rates substantially below their current level of 4.25 to 4.5 percent. 'We could go into a series of rate cuts here, starting with a 50 basis point rate cut in September,' he said on the Bloomberg News television network. 'We should probably be 150, 175 lower. I think the committee needs to step back.' Bessent's remarks were his clearest yet on what should happen with short-term interest rates. Treasury secretaries, which handles debt issuance and tax collection, don't traditionally weigh in on monetary policy, which is left to the Fed. While Bessent has called the Fed's independence on monetary policy a 'jewel box' not to be tampered with, he has also joined President Trump and other administration officials in criticizing the bank's handling of interest rates. Trump has been calling for interest rate cuts since the beginning of the year and has nicknamed Fed Chair Jerome Powell 'Too Late' due to his reluctance to begin cuts this year and the bank's sluggish response to post-pandemic inflation. The Fed has kept interbank lending rates at an effective level of 4.33 percent since January after making three cuts in the back half of last year. The Fed has been waiting to see the effects of tariffs on the economy. Inflation held steady from June to July at a 2.7-percent annual increase in consumer price index (CPI) after ticking up from 2.4 percent in May. The job market slowed down significantly over the past three months, adding just 106,000 jobs from May through July. Asked Wednesday if a half-percent rate cut in September would signal that the fundamentals of the economy are not in good shape, Bessent said the signal would be one of transition. 'That signals that there's an adjustment, and that rates are too constrictive,' he said. FPowell has said recently that he believes interest rates are now 'modestly restrictive,' meaning that inflation-adjusted interest rates are lowering potential profitability and restraining the level of investment. Bessent criticized Powell's reliance and reactivity to incoming data, which the Fed chair has often stressed during his tenure as chair. 'He's not Alan Greenspan, who was very forward-thinking. They try to be more data-driven, which I think is a mistake,' Bessent said. 'It's just very old-fashioned thinking.'
CNBC
2 hours ago
- CNBC
Goldman stands by call that consumers will bear the brunt of tariffs after Trump blasts bank's economist
In the face of blistering criticism from President Donald Trump, Goldman Sachs economist David Mericle on Wednesday stood by a controversial forecast that tariffs will begin to hit consumer wallets. Trump lashed out at the bank in a Tuesday post on Truth Social, suggesting that CEO David Solomon "get a new Economist" or consider resigning. Mericle, though, said in a CNBC interview that the firm is confident in its research, the president's objections notwithstanding. "We stand by the results of this study," he said on "Squawk on the Street." "If the most recent tariffs, like the April tariff, follow the same pattern that we've seen with those earliest February tariffs, then eventually, by the fall, we estimate that consumers would bear about two thirds of the cost." The source of the president's ire was a Goldman note over the weekend, authored by economist Elsie Peng, asserting that while exporters and businesses thus far have absorbed most of Trump's tariffs, that burden will switch in the months ahead to consumers. In fact, Peng wrote that Goldman's models indicate consumers will take on about two-thirds of all the costs. If that's the case, it will push the personal consumption expenditures price index, the Federal Reserve's main inflation forecasting gauge, to 3.2% by the end of the year, excluding food and energy. Core PCE inflation for June was at 2.8%, while the Fed targets inflation at 2%. "If you are a company producing in the U.S. who is now protected from foreign competition, you can raise your prices and benefit," Mericle said. "So those are our estimates, and I think actually, they're quite consistent with what many other economists have found." Of note, Mericle said Trump likely still will get at least some of the interest rate cuts he's been demanding of the Fed. "I do think most of the impact is still ahead of us. I'm not worried about it. I think, like the White House, like Fed officials, we would see this as a one-time price level effect," he said. "I don't think this will matter a whole lot to the Fed, because now they have a labor market to worry about, and I think that's going to be the dominant concern." Following modest gains reported this week for the consumer price index, and a weak July nonfarm payrolls report that featured sharp downward revisions to the prior two months, markets are pricing in cuts from the Fed at each of its three remaining meetings this year.
Yahoo
2 hours ago
- Yahoo
Dollar Continues Lower on US Rate-Cut Expectations
The dollar index (DXY00) today is down -0.35%, adding to Tuesday's loss of -0.43%. The dollar index has continued lower on increased expectations for Fed rate cuts through year-end. The dollar is also being undercut by weaker dollar interest rate differentials, with the 10-year T-note yield down -5.4 bp today and the 2-year T-note yield down by -5.6 bp. Treasury Secretary Scott Bessent today said that interest rates are "too constrictive" and that rates "should probably be 150, 175 basis points lower." He added, "There's a very good chance of a 50 basis point cut. We could go into a series of rate cuts here, starting with a 50 basis point rate cut in September." The Fed is currently targeting the federal funds rate in the range of 4.25%-4.50% and the effective rate is currently at 4.33%. More News from Barchart Will Palladium's Rally Continue? Dollar Trades Lower as CPI Report Boosts Chances of a Fed Rate Cut Dollar Falls as CPI Report Boosts Chances of a Fed Rate Cut Markets move fast. Keep up by reading our FREE midday Barchart Brief newsletter for exclusive charts, analysis, and headlines. The markets have started to think about the chances for a -50 basis point rate cut in September, based on Monday's largely benign CPI report and the fact that the US labor market is slowing, with average monthly payroll growth in May-July of only +35,000. On a year-on-year basis, Tuesday's July headline CPI of +2.7% y/y was slightly weaker than expected, but the core CPI of +3.1% y/y was slightly stronger than expected. The federal funds futures market today boosted the odds to 100% for a -25 bp rate cut in September and a slight 1% chance of a -50 bp rate cut. The market late Tuesday was discounting the odds of a -25 bp rate cut in September at 96%, up from 40% before the July payroll report released on August 1. The federal funds futures market is currently discounting an overall -63 bp rate cut by the end of this year to 3.70%, and an overall -133 bp rate cut to 3.00% by the end of 2026. In recent tariff news, President Trump extended the tariff truce with China, which was to expire on Tuesday, for another 90 days. Last Wednesday, President Trump announced that he will impose a 100% tariff on semiconductor imports. Still, companies would be eligible for exemptions if they demonstrate a commitment to building their products in the US. However, the US will levy a separate tax on imports of electronic products that employ semiconductors. Also, Mr. Trump announced last Wednesday that he will double tariffs on US imports from India to 50% from the current 25% tariff, due to India's purchases of Russian oil. Last Tuesday, Mr. Trump said that US tariffs on pharmaceutical imports would be announced "within the next week or so." According to Bloomberg Economics, the average US tariff will rise to 15.2% if rates are implemented as announced, up from 13.3% earlier, and significantly higher than the 2.3% in 2024 before the tariffs were announced. Federal funds futures prices are discounting the chances for a -25 bp rate cut at 100% at the September 16-17 FOMC meeting and at 70% for a second -25 bp rate cut at the following meeting on October 28-29. EUR/USD (^EURUSD) is up +0.37% due to dollar weakness. However, sentiment on the euro remains cautious due to the negative impact of US tariffs on the European economy. Also, market expectations are low for any significant progress at Friday's Trump-Putin summit in Alaska regarding the Russia-Ukraine war. Swaps are pricing in a 7% chance of a -25 bp rate cut by the ECB at the September 11 policy meeting. USD/JPY (^USDJPY) is down -0.43% due to weakness in the dollar. The yen continues to be undercut by concern that US tariff policies will harm the Japanese economy. December gold (GCZ25) is up +15.3 (+0.45%), and September silver (SIU25) is up +0.588 (+1.55%). Precious metals prices are higher today due to the weaker dollar and increased talk about US interest rate cuts through year-end. Precious metals are also seeing support from today's decline in US T-note yields. Gold continues to have safe-haven support related to US tariffs and geopolitical risks, including the conflicts in Ukraine and the Middle East. Fund buying of precious metals continues to support prices after gold holdings in ETFs rose to a two-year high on Monday, and silver holdings in ETFs reached a three-year high last Friday. On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on
