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Scott Bessent questions whether Powell should cut rates by 0.50bps in September

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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 snag

Markets 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.”



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Trump administration waives part of a Biden-era fine against Southwest Air for canceled flights

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The U.S. Department of Transportation is waiving part of a fine assessed against Southwest Airlines after the company canceled thousands of flights during a winter storm in 2022.

Under a 2023 settlement reached by the Biden administration, Southwest agreed to a $140 million civil penalty. The government said at the time that the penalty was the largest it had ever imposed on an airline for violating consumer protection laws.

Most of the money went toward compensation for travelers. But Southwest agreed to pay $35 million to the U.S. Treasury. Southwest made a $12 million payment in 2024 and a second $12 million payment earlier this year. But the Transportation Department issued an order Friday waiving the final $11 million payment, which was due Jan. 31, 2026.

The department said Southwest should get credit for significantly improving its on-time performance and investing in network operations.

“DOT believes that this approach is in the public interest as it incentivizes airlines to invest in improving their operations and resiliency, which benefits consumers directly,” the department said in a statement. “This credit structure allows for the benefits of the airline’s investment to be realized by the public, rather than resulting in a government monetary penalty.”

The fine stemmed from a winter storm in December 2022 that paralyzed Southwest’s operations in Denver and Chicago and then snowballed when a crew-rescheduling system couldn’t keep up with the chaos. Ultimately the airline canceled 17,000 flights and stranded more than 2 million travelers.

The Biden administration determined that Southwest had violated the law by failing to help customers who were stranded in airports and hotels, leaving many of them to scramble for other flights. Many who called the airline’s overwhelmed customer service center got busy signals or were stuck on hold for hours.

Even before the settlement, the nation’s fourth-biggest airline by revenue said the meltdown cost it more than $1.1 billion in refunds and reimbursements, extra costs and lost ticket sales over several months.



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Trump slams Democratic congressman as disloyal for not switching parties after pardon

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Trump blasted Cuellar for “Such a lack of LOYALTY,” suggesting the Republican president might have expected the clemency to bolster the GOP’s narrow House majority heading into the 2026 midterm elections.

Cuellar, in a television interview Sunday after Trump’s social media post, said he was a conservative Democrat willing to work with the administration “to see where we can find common ground.” The congressman said he had prayed for the president and the presidency at church that morning “because if the president succeeds, the country succeeds.”

Citing a fellow Texas politician, the late President Lyndon Johnson, Cuellar said he was an American, Texan and Democrat, in that order. “I think anybody that puts party before their country is doing a disservice to their country,” he told Fox News Channel’s “Sunday Morning Futures.”

Trump noted on his Truth Social platform that the Democratic President Joe Biden’s administration had brought the charges against Cuellar and that the congressman, by running once more as a Democrat, was continuing to work with “the same RADICAL LEFT” that wanted him and his wife in prison — “And probably still do!”

“Such a lack of LOYALTY, something that Texas Voters, and Henry’s daughters, will not like. Oh’ well, next time, no more Mr. Nice guy!” Trump said. Cuellar’s two daughters, Christina and Catherine, had sent Trump a letter in November asking that he pardon their parents.

Trump explained his pardon he announced Wednesday as a matter of stopping a “weaponized” prosecution. Cuellar was an outspoken critic of Biden’s immigration policy, a position that Trump saw as a key alignment with the lawmaker.

Cuellar said he has good relationships within his party. “I think the general Democrat Caucus and I, we get along. But they know that I’m an independent voice,” he said.

A party switch would have been an unexpected bonus for Republicans after the GOP-run Legislature redrew the state’s congressional districts this year at Trump’s behest. The Texas maneuver started a mid-decade gerrymandering scramble playing out across multiple states. Trump is trying to defend Republicans’ House majority and avoid a repeat of his first term, when Democrats dominated the House midterms and used a new majority to stymie the administration, launch investigations and twice impeach Trump.

Yet Cuellar’s South Texas district, which includes parts of metro San Antonio, was not one of the Democratic districts that Republicans changed substantially, and Cuellar believes he remains well-positioned to win reelection.

Federal authorities had charged Cuellar and his wife with accepting thousands of dollars in exchange for the congressman advancing the interests of an Azerbaijan-controlled energy company and a bank in Mexico. Cuellar was accused of agreeing to influence legislation favorable to Azerbaijan and deliver a pro-Azerbaijan speech on the floor of the U.S. House.

Cuellar has said he his wife were innocent. The couple’s trial had been set to begin in April.

In the Fox interview, Cuellar insisted that federal authorities tried to entrap him with “a sting operation to try to bribe me, and that failed.”

Cuellar still faces a House Ethics Committee investigation.



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Jerome Powell faces a credibility issue as he tries to satisfy hawks and doves on a divided Fed

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With the Federal Reserve split between increasingly hawkish and increasingly dovish policymakers, Chairman Jerome Powell is due to perform some serious log-rolling when the central bank meets this week.

Another rate cut is a near certainty after the Fed meeting ends on Wednesday, but the main question is what Powell will say about the prospects for more easing next month.

Wall Street expects a hawkish cut, meaning Powell is likely to avoid signaling a January cut to appease Fed hawks, after joining doves to lower rates this month.

“Chair Powell is facing the most divided committee in recent memory,” analysts at Bank of America said in a note on Friday. “Therefore, we think he will attempt to balance the expected rate cut with a hawkish stance at the press conference, just as he did in October.”

But at the same time, the Fed chief has also been insistent that policymakers are not on a pre-determined course and that rate moves depend on the data that come in.

As a result, BofA is doubtful that he can pull off a hawkish cut so easily, considering all the market-moving data that will come out between the two meetings, with some delayed due to the government shutdown.

The week after the Fed meeting, for example, jobs numbers for October and November, October retail sales, and the consumer price index for November will come out. And December readings for those indicators are likely to be released before the next meeting on Jan. 27-28.

“It will be difficult for Powell to send a credibly hawkish signal at the press conference,” analyst said.

BofA still sees a way for him to thread the needle. One option is for Powell to suggest that “significant further weakening” in the jobs data will be necessary to trigger a January cut.

Another option is to argue that 3.5%-3.75%—where benchmark rates would be if the Fed cuts again this week—isn’t restrictive after accounting for inflation, meaning the central bank is no longer weighing on the economy as much.

Similarly, JPMorgan chief U.S. economist Michael Feroli said he expects Powell to stress that after this week’s cut, rates will be close to neutral. So any additional easing would depend on meaningful deterioration in the labor market and not be predicated in risk management.

For now, Wall Street doesn’t expect a January cut, with 25% odds currently being priced in on CME Group’s FedWatch tool. But BofA thinks Powell will likely leave the door open for one.

“We wouldn’t be surprised if markets start pushing more aggressively for a Jan cut in the near term,” analysts predicted. “And the anticipation of this outcome might raise the probability of more dissents in Dec, since hawks might be inclined to dig their heels in instead of compromising.”



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