Market Rally as Fed Rate Cut Expectations Intensify

Kenneth Bessent, a prominent financial analyst, criticized the Federal Reserve's delayed response to weakening economic indicators, suggesting a 50 basis-point rate cut was warranted. Revised job growth data for May and June, released post-Fed's July decision, revealed softer numbers than initially reported. "The Fed could have been cutting in June, July," Bessent remarked, highlighting missed opportunities for earlier monetary easing.

July's inflation data showed a 0.2% rise in CPI and a 0.3% increase in Core CPI, aligning with forecasts. Notably, goods prices remained stable despite tariffs, while services inflation accelerated unexpectedly. "Everyone was expecting goods inflation, but there was actually this very odd service inflation," Bessent observed, pointing to structural shifts in price pressures.

Equities surged on growing expectations for aggressive Fed easing, with the S&P 500, Nasdaq, and Dow Jones gaining 1%-1.4%. Futures markets now price in a near-certain 25bps September cut, with non-trivial odds of Bessent's proposed 50bps reduction. The rally reflects Optimism that tariff impacts may be milder than feared and inflation could continue cooling.