Fed Rate Cut Speculation Gets a Fresh Impetus from Treasury Secretary Bessent
August 13, 2025
In the Trump Administration’s opinion, the federal funds target ought to be 150-175 basis points lower than the current 4.25-4.50% target range. Remarks from Treasury Secretary Bessent harp back to overly optimistic jobs figures announced initially for both May and June that were subsequently revised sharply lower. In his telling, there should have rate cuts at the previous FOMC meetings in early June and late July, and he suggests that a 50-basis point cut at September’s policy review ought to be followed by a series of large cuts. The problem with such advice is that it ignores the critical mistake of monetary policy some 55 years ago that seeded a bout of double-digit inflation. The error then was cutting interest rates way back as soon as inflation started to recede and doing so well before an acceptable degree of price stability had been restored. By acting repeatedly too early, higher price expectations became deeply rooted and priced into all sorts of economic decisions made by businesses, workers, and consumers. At 3.1%, core consumer price inflation in July was over 50% greater than the 2.0% goal, and the main inflationary effect of the reciprocal tariffs has yet to flow through the pipeline.
In almost every other endeavor across a vast array of policy objectives, the Trump Administration has been getting its way, and so world financial markets are setting up for a high likelihood that Fed policy is about to become a whole lot less restrictive. This shifting view has depressed the dollar. While domestic U.S. inflation measures the changing internal view of the U.S. currency, dollar exchange rates measure the trend in its external value, and the two gauges should theoretically move more or less in tandem. The dollar overnight fell 0.5% against sterling and the won, 0.4% relative to the yen and kiwi, and 0.3% further versus the euro, Swiss franc and Australian dollar. The weighted DXY index is at its lowest point since July 24th.
The stampede into riskier assets saw stock markets extend their advances and 10-year sovereign debt yields retreat today.
- Share prices rose 1.5% in Thailand, 1.3% in Japan and Indonesia, 2.6% in Hong Kong, 1.2% in Singapore, 0.5% in China and 0.4% in India.
- Key stock markets in the euro area currently sport advances ranging from 0.6% in France to 1.2% in Spain.
- The Russell 2000 and DOW are 0.9% and 0.6% higher so far.
- Bitcoin’s price has jumped 1.2%.
- Ten-year sovereign debt yields are down six basis points in France and Italy and by five basis points in the United States, Spain, Germany and Great Britain.
German and Spanish consumer price inflation in July has been confirmed at their previously revealed preliminary figures. In Spain, the CPI dipped 0.1% on month but accelerated to a 5-month high on-year rate of of 2.7%. Core inflation of 2.3% was also unrevised. In Germany’s case, consumer prices last month rose 0.3% above June’s level but held steady at a 2.0% year-on-year reading. That’s above the 43-month low of 1.6% last September but well down from 8.7% in the first two months of 2023. Germany also reported a minuscule 0.5% lower-than-forecast wholesale price inflation rate in July. The WPI peaked in September 2022 at 19.3% but swung into sub-zero territory from May 2023 to November 2024.
The year-on-year increase of Japanese domestic producer prices for goods slid 0.3 percentage points to an 11-month low of 2.6% in July, and import prices were 10.4% below year-earlier levels.
Australia’s quarterly wage price index increased 0.8% in 2Q 2025 and matched the first quarter’s 3.4% year-on-year reading. That’s down from 4.1% in the second quarter of 2024.
Chinese new yuan loans contracted CNY 50 billion last month, marking their first monthly decrease in two decades. In contrast, the stock of Chinese M2 money accelerated by half a percentage point to an year-on-year 8.8% advance.
Brazilian retail sales in June were only 0.3% higher than a year earlier, down from 12-month increases of 5.3% in April and 2.1% in May. South African retail sales growth from a year earlier likewise slowed to 1.6% from 4.3% in May and 5.2% in April.
As widely expected and by unanimous vote, the key interest rate of the Bank of Thailand was cut today by 25 basis points to 1.5%. The reduction marked the fourth such cut since October from 2.5%, which had been the peak since September 2023. This latest policy easing was undertaken even though, as noted in a released statement of explanation, growth prospects are pretty much unchanged before. The impetus for the action was instead the continuing sub-target inflation rate (-0.7% in July) and concerns about international trade tensions.
The Thai economy in 2025 and 2026 is projected to expand close to the previous assessment. Nevertheless, U.S. trade policies will exacerbate structural problems and weaken competitiveness. Monetary policy should be more accommodative to some extent to ensure that financial conditions are conducive to business adjustment and to help alleviate the burden of vulnerable groups.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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