Morning Bid: Fed easing bets reach fever pitch

 

Markets are intensifying their expectations for imminent interest rate cuts by the Federal Reserve, driven in part by comments from top U.S. officials and influential investors such as Treasury Secretary Scott Bessent. These cues have elevated the likelihood of a 50-basis-point reduction as early as next month, especially as markets await the critical U.S. producer price index (PPI) data release.

On Wednesday, remarks from Bessent highlighted that downward revisions to U.S. payroll figures suggest the Fed may be lagging, asserting there is a “very good chance” of a 50-basis-point cut in September and that rates could potentially be trimmed by as much as 150-175 basis points in total.

While Wall Street surged to record highs midweek, stock futures pulled back slightly ahead of the PPI release. Simultaneously, two-year Treasury yields remained near three-month lows, signaling sustained market optimism for monetary easing. Despite caution from some Federal Reserve officials regarding such a large cut, many large banks are projecting as many as three rate reductions this year, citing soft job growth, minimal inflation pressure from tariffs, and expected appointments to the Fed board as contributing factors.

Today’s PPI report for July is highly anticipated, as it feeds into the Fed’s preferred inflation gauge—the PCE. Expectations point to a rise in annual headline PPI to around 2.5% and core PPI to approximately 2.7%.

Meanwhile, the political backdrop remains significant. President Trump has indicated that he will name his pick for Fed Chair “a little bit earlier,” reportedly narrowing the list of candidates to just three or four, down from earlier speculation of as many as twelve.

On the global front, easing inflation concerns were reinforced by a drop in oil prices to two-month lows. Currencies reacted—Japan’s yen surged to three-week highs, dampening a rally in the Nikkei; sterling gained against softer forecasts.

Cryptocurrencies also caught attention, as Bitcoin climbed to a fresh all-time high, fueled by robust investor appetite amid rising rate-cut expectations.