Markets Respond to Rate Cut Expectations

With expectations for a Federal Reserve interest rate cut in September reaching nearly 100%, the New York stock market experienced a broad rally. President Donald Trump's announcement of narrowing down the next Federal Reserve chair candidates to three or four has further fueled these expectations.

Stock Market Highlights

On August 13, the Dow Jones Industrial Average closed up 1.04%, while the S&P 500 and Nasdaq Composite also saw gains. Tech stocks showed mixed results, with Apple and Amazon leading gains, whereas others like Nvidia and Microsoft faced declines due to profit-taking.

Interest Rate Cut Probabilities

The CME FedWatch tool indicates a 93.8% probability of a 25 basis points rate cut in September, with a 6.2% chance of a 50 basis points reduction. This shift reflects growing confidence in the Fed's dovish stance following the latest U.S. Consumer Price Index data.

Trump's Influence on Fed Leadership

President Trump's comments on expediting the nomination process for the next Fed chair have added pressure for rate cuts. With Jerome Powell's term ending next May, Trump's strategy to neutralize Powell's influence by nominating a successor early is clear.

Potential Fed Chair Candidates

Among the speculated candidates are current Fed Governor Christopher Waller, Kevin Hassett, and Kevin Warsh, with recent additions including Fed Vice Chairs Michelle Bowman and Philip Jefferson. The selection process, led by Treasury Secretary Scott Bessent, is underway, with Trump expected to make the final nomination.

Economic Implications

Trump emphasized the significant annual interest on national debt, advocating for a 3-4 percentage points reduction in the benchmark rate. Meanwhile, Fed officials remain cautious, highlighting the uncertain impact of tariffs on inflation.