Making sense of the forces driving global markets

By Jamie McGeever, Reuters Open Interest Markets Columnist 

Stocks rose around the world on Wednesday, and bond yields and the dollar fell, as comments from U.S. Treasury Secretary Scott Bessent fueled traders' bets that the Fed will cut interest rates next month, perhaps even by half a percentage point.

More on that below. In my column today I suggest that what's giving Fed Chair Jerome Powell his biggest headache right now is not the pressure or attacks from President Trump, but the inconclusive economic data. 

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* Fed policy. In the realms of market pricing, a rate cut next month is now a nailed-on certainty, with traders putting the chances of a quarter point cut at 99.9%. This wager was strengthened by comments from Treasury Secretary Scott Bessent, who told Bloomberg News a 50-basis point cut is possible. Bessent's comments are the latest in a growing list of verbal interventions - or outright political interference - from the Trump administration in the business and economics arena it traditionally steers clear of, like the Fed, non-partisan institutions, and private sector companies and banks.

* Trump's Fed nominations. Bessent said early on Wednesday that no fewer than 11 candidates were being considered to replace Fed Chair Jerome Powell, whose term expires in May (or, earlier, if he is fired or resigns). The President later shortened that list to three or four. Interestingly, absent from Bessent's list was current Council of Economic Advisers Stephen Miran, nominated to fill an open Fed board seat with a term that ends in January. 

* Trump-Putin meeting. The U.S. and Russian leaders are scheduled to meet in Alaska on Friday, a face-to-face which Ukraine's allies hope will see Trump urge Putin to agree a ceasefire without selling out Kyiv's interests or carving up its territory. Trump, Ukraine's Volodymyr Zelenskiy and European leaders met in a last-ditch videoconference on Wednesday to lay out Ukraine's red lines, a call Trump said was "very friendly". France's Emmanuel Macron said Trump was "very clear" that he wants to achieve a ceasefire in Alaska. 

It's widely believed that U.S. President Donald Trump's insistence on lower interest rates is what's making life most difficult for Federal Reserve Chair Jerome Powell and his colleagues. But what's causing the biggest headache for Fed officials is, in fact, probably more prosaic: economic data.

The key challenges facing Powell were encapsulated perfectly on Tuesday by the release of an inconclusive U.S. inflation readout followed by Trump's latest verbal attack – and threats of a "major lawsuit."

Politics aside, most Fed officials agree that rates will fall this year, with the median "dot plot" in the Fed's June Summary of Economic Projections pointing to 50 basis points of easing through December. Traders are betting heavily that the first move will be in September.

But it's tough to justify that confidence based purely on economic data. While some indicators suggest policy should be eased sooner rather than later, others indicate that would be a high-risk move. Looking at the "totality of the data," to borrow a phrase from Powell, there is no clear signal either way.