WASHINGTON: Economists at Nomura Holdings Inc now forecast the US Federal Reserve (Fed) will begin cutting interest rates in September as the labour market weakens and inflation presents less risk.
The Fed will likely ease policy at the September meeting by 25 basis points (bps), followed by two more cuts in December and March, Nomura economists wrote in a note.
While the median estimate of analysts called for a 25 bps cut in the next three months, economists had been divided on the timing.
Nomura was among those that didn’t expect officials to ease policy until later in the year.
Markets are also pricing in Fed moves, baking in a September cut and positioning for another reduction in December, according to world interest rate probability data.
Consumer price data showed a core reading increased 0.3% in July, in-line with economist expectations.
Tariff-related categories rose at a tame pace, encouraging markets that the levies wouldn’t pose an outsize inflationary risk.
The labour market, meanwhile, has shown signs of slowing, with revisions showing the past three months notched the weakest pace of monthly job creation since the pandemic.
Meanwhile, Treasury secretary Scott Bessent suggested that the Fed ought to be open to a bigger, 50 basis-point cut in the benchmark interest rate next month, after having skipped a move at the last meeting.
“The real thing now to think about is should we get a 50 bps rate cut in September,” Bessent said in an interview on Fox Business.
He spoke hours after what he described as an “incredible” inflation report for July.
Bessent also said he was “hopeful” that Trump’s pick for the currently open position on the Fed board, Stephen Miran, will be in place in time for the Sept 16-17 policy meeting.
Miran was tapped to fill a board seat that runs to January.
Bessent said it’s possible that he could be asked to “stay on” for a further term. Full Fed board terms are 14 years.
As for the nominee to succeed Fed chair Jerome Powell, whose time at the helm expires in May, Bessent said Trump is casting a “very wide net.”
The Treasury chief cited three criteria for the pick for chair – the person’s views on monetary policy, regulatory policy and an ability to run and revamp the central bank as an organisation.
The Fed “got bloated” over the time, and that has put its independence over monetary policy at risk, Bessent said.
Trump has regularly criticised Powell for failing to oversee a rate cut this year.
The Fed chief and many of his colleagues have said they want to see greater evidence about any impact on inflation and inflation expectations from the tariff hikes. — Bloomberg
