Besanct sees Fed rate cut likely by Sept or sooner, says tariffs aren’t fueling inflation

Bessent: Federal Reserve May Cut Rates Before September

U.S. Treasury Secretary Bessent recently stated that considering the mild impact of President Trump's tariffs on inflation, the Federal Reserve might initiate a new round of rate cuts by September or earlier. Bessent pointed out that the current tariffs have not caused significant inflationary pressure, and if the Fed adheres to the “tariffs have not caused inflation” standard, it might take preemptive action to cut rates.

He emphasized that after the Fed's 50 basis point rate cut last September, the U.S. inflation rate has continued to decline, which alone supports another rate cut. He candidly remarked, "This tariff-induced disorder even exists within the Fed itself."

Trump Continues to Pressure for Significant Rate Cuts

Recently, the Trump administration has been pressing the Fed to further cut rates in response to economic slowdown and global trade uncertainties. Trump criticized Federal Reserve Chairman Powell on Truth Social, accusing him of being “slow to act, costing the U.S. a lot,” and urged for a significant rate cut of up to 3 percentage points.

Insiders have revealed that Bessent is seen as a top contender to succeed Powell as the next Federal Reserve Chairman when Powell's term ends in May 2026. Bessent has also publicly increased his criticism of the Fed's slow policy actions, describing the Fed as “an old man who keeps looking at his feet after falling once, easily falling again,” and pointed out that the Fed's slow reaction to inflation in 2022 was the initial “falling” cause.

Powell Says Tariffs Delayed Rate Cut Decision

Federal Reserve Chairman Powell, speaking at the European Central Bank’s Broker Detectorry Policy Conference in Portugal, stated that a rate cut could be considered at the July 28-29 meeting. He noted, “Without the tariffs imposed by the Trump administration, the Fed would have already cut rates.” He emphasized that the large scale of tariffs significantly increased inflation expectations in the U.S. market, which is the main reason for delaying the rate cut.

Currently, the Fed has cumulatively cut rates by 1 percentage point in 2024, but has not further cut rates in 2025, maintaining a wait-and-see stance on whether tariffs will affect U.S. inflation levels during the summer.

Federal Reserve Facing Policy Adjustment Window

Against the backdrop of global economic slowdown, manufacturing pressure, and weak consumer demand, the U.S. economy faces the dual challenges of declining inflation and slowing growth. Bessent believes that the Fed's recent downward revision of U.S. economic growth projections, coupled with easing price growth pressures, provides room for the Fed to cut rates ahead of schedule.

Currently, the market widely expects the Fed to initiate a rate cut cycle at the September meeting to address economic fluctuations and tightening credit conditions under Trump's tariffs, while stabilizing market expectations.

Rate Cut Window May Accelerate Opening

Analysts point out that if upcoming U.S. employment and inflation data continue to show signs of economic slowdown, the Fed might cut rates by September or even earlier to alleviate downward economic pressure and maintain financial market stability. Investors are closely monitoring the Fed's next policy moves, while also watching for further changes in Trump's tariff policies.

Bessent emphasized that even if tariffs cause a short-term price increase, it is only a one-time effect and insufficient as a reason for a rate hike. He reiterated, “We should not delay necessary policy adjustments due to one-time factors.”

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