Bitcoin Sinks Following Hotter-Than-Expected Inflation Print, Bessent Comments on Strategic Reserve

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A jump in wholesale prices is likely to bolster concerns among Federal Reserve policymakers that rising inflation remains a risk, intensifying debate over the wisdom of a rate cut at their September meeting and leaving the tension between the U.S. central bank and the White House unresolved.

U.S. producer prices increased a more-than-expected 0.9% in July from June, the Labor Department's Bureau of Labor Statistics said on Thursday. Trade services inflation, a measure of retail and wholesale margins, rose 2%, the fastest pace in a couple of years and a possible signal of prices being passed along to consumers instead of absorbed through lower profits.

Analysts said the increase could be a precursor of higher consumer prices, which to date have reflected a more limited impact from the Trump administration's higher tariffs than initially expected.

Shows PPI trade services

The data virtually eliminated in the minds of investors the likelihood of a larger-than-normal half-point cut at the September meeting, and left policymakers to decide how to rationalize an expected quarter-point cut in September with inflation still well above their 2% target.

Recent weak job gains have caused a reassessment of the risks facing the economy, St. Louis Fed President Alberto Musalem said in a CNBC interview on Thursday, with slow growth threatening the job market and possibly warranting a cut if the weakness continues. But he said he needs further data before making a call on what to do in September given above-target inflation and the fact the economy is still early in the process of adapting to rising import taxes.

Inflation by some of the measures most closely watched by the Fed could be nearing 3% following the new Producer Price Index data, and Musalem said he remained noncommittal about a September rate cut until he knows more.

"I expect ... most of the impact of tariffs on inflation to fade after two to three quarters ... But there is a reasonable probability that they could be more persistent," said Musalem, a voter this year on Fed interest rate policy. "We need to get a better fix on that ... A little more data would be helpful."

The Fed will receive another employment report covering August, as well as this month's inflation data before its September meeting, releases that could prove pivotal to both a decision on cutting rates and to how that decision is framed - whether as the start of a cutting cycle aimed at moving monetary policy to a "neutral" setting, or as an adjustment that may or may not be followed by further rate moves.

Two Fed governors, Christopher Waller and Vice Chair for Supervision Michelle Bowman, dissented at the Fed's July meeting against the decision to hold rates steady, favoring a quarter-point cut, an outcome that investors now consider a near certainty for the September meeting.

BESSENT ARGUES FOR SERIES OF CUTS

In recent days, Treasury Secretary Scott Bessent has argued that a series of cuts could be warranted to move the benchmark policy rate from the current range of 4.25% to 4.5%, to around 3%, a level considered to neither boost nor discourage economic activity.

"There is room for a series of cuts ... A model of a neutral rate is approximately 150 basis points lower," Bessent said in a Fox Business interview on Thursday while adding he was not giving advice to the Fed, whose judgments on rate policy are supposed to be made independently of White House influence, but simply noting his analysis of the situation.

His comments, however, preceded the release of the new wholesale price data that is likely to complicate the Fed's own read of the situation.

Musalem, while not prejudging the outcome of September, said he did feel a larger half-point cut was "unsupported" by current economic conditions, a view shared by San Francisco Fed President Mary Daly in a Wall Street Journal interview.

A rise in services inflation that was evident underneath otherwise tame consumer price data released on Wednesday may also worry policymakers who were counting on weaker services prices to offset any tariff-related jump in the cost of imported goods.

Chicago Fed President Austan Goolsbee, also a policy voter, said on Wednesday he was open to a cut in September despite ongoing concerns about inflation, but was focused on coming information.

"We're going to get some good and important pieces of information that I'm going to add to the ones that we've gotten for the last three months," Goolsbee said.

Source: Reuters

Source: investing

Source: Bloomberg Europe