Lisa Cook Proceedings Likely to Sway Rate Cut Expectations
We’ll follow the data and its implications, but keep an eye on President Trump’s Fed efforts.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
Given the conversation around the economy and renewed inflation pressures, we expected to see drama surrounding a potential rate cut make its way back into the market on Friday, depending on where the July Core PCE price index comes in.
The market expectation calls for a year-over-year print of 2.9%, inching up from the 2.8% figure for both May and June. That’s largely in line with the 2.89% figure put forth by the Cleveland Fed’s Inflation NowCasting model, the same one that currently pegs August core PCE at 2.96%. And, for those keeping score, when we return from the Labor Day holiday weekend, the smattering of August PMI and jobs data could, depending on what it shows in the aggregate, throw another log on that fire.
But there is another piece of drama developing that could sway the market’s September rate cut expectation. First, reports suggest Fed Governor nominee and President Trump pick Stephen Miran's confirmation process may be fast-tracked ahead of the September FOMC meeting. The timing of the hearing has yet to be announced.
Second, Judge Jia Cobb, who was appointed to the federal bench in late 2021 by former President Joe Biden, is set to hear Federal Reserve Board Governor Lisa Cook’s request to block President Trump from firing her on Friday. The proceedings are expected to begin at 10 a.m. ET.
As you know, we opt not to dip into political commentary, but we will continue to watch these developments to gauge the potential for Trump to reshape the Fed and the prospects for interest rate cuts sooner than the data may call for. It's TBD if this will have an impact on the Fed’s September meeting, but there are also ones in late October and early December.
Thursday's Q2 2025 GDP Revision
Speaking of data, on Thursday morning we received the second revision for Q2 2025 GDP to 3.3% from the initial 3.0% figure. The bump up primarily reflected upward revisions in investment and consumer spending, but the revised figure also indicates a more robust economy was had compared to the 0.5% contraction posted in Q1 2025. For our money, we will average the two quarters to smooth out the impact of pull-forward activity in late Q1 ahead of Trump’s tariffs.
Next Week’s Economic Data Is Important
That math pegs 1H 2025 GDP near 1.4% and compares to the current crop of rolling GDP forecasts from the Atlanta Fed and New York Fed that so far see GDP for the current quarter around 2.0% to 2.2%. Should next week’s crop of data reinforce the view that the economy is humming at a quicker pace than it was in 1H 2025, show employment picked up in August like we saw in the Flash August PMI report, and demonstrate that inflation pressures continue to tick higher, the market may need to re-think the 85% probability for a September rate cut currently depicted in the CME FedWatch Tool.
Remember, when Fed Chair Powell spoke at Jackson Hole, he shared a number of potential scenarios about the employment market and inflation. He concluded his remarks saying that, depending on what happens and what is seen in the data, the Fed’s policy stance “may warrant adjusting.”
May.
We’ll be finely tuned into Friday's data as well as next week’s, and based on what it shows, we’ll adjust our thinking, and perhaps the market may need to as well. If that data means the market needs to revise its rate cut expectations lower, that could be something that leads September 2025 to repeat the seasonally weak monthly performance we’ve seen in the past.
To us, that spells potential opportunity.
