Good morning, investors. We’re one day out from Jerome Powell’s highly-anticipated Jackson Hole speech, so this morning we’re sharing the ultimate data-based breakdown to what’s likely a surefire September rate cut.
Making the case
Everyone expects the Federal Reserve to lower interest rates in September.
But there isn’t a consensus on whether it should cut rates.
Fed Chair Jerome Powell and President Trump are the figureheads for the debate, but the split trickles down to other policymakers, economists and strategists.
CME data shows 84% odds for a cut next month, while traders on Kalshi assign a 71% likelihood.
We compiled the most compelling arguments for and against rate cuts — from voices including Treasury Secretary Scott Bessent, Fed officials Waller, Bowman, and Schmid; and Wall Street voices ranging from Larry Summers and Ed Yardeni to James Fishback — all in one place.
The bull case: Cut immediately
The economy is losing steam
GDP growth slowed to just 1.2% in the first half of the year
Consumer spending has softened
Payroll growth has stalled at just 35,000 jobs a month
The labor market is more fragile than the headline 4.2% unemployment rate suggests
Inflation has cooled
Stripping out one-off tariff effects, core inflation is running closer to 2.5% and trending lower
Housing services inflation is cooling, other core services are consistent with 2%, and goods inflation remains elevated mostly due to tariffs
Monthly job growth has declined dramatically in 2025 (Chart courtesy of Exhibit A)
Policy is too restrictive
The Fed’s own estimates put the neutral rate near 3%, which means the current level is 125–150 basis points too tight
Holding here risks waiting too long and allowing labor market weakness to snowball
Housing affordability is historically bad
High borrowing costs are choking homebuilding and mortgage availability
Lower rates would ease construction bottlenecks and unlock supply
The risks of delay are asymmetric
If the Fed cuts now and inflation climbs, it can pause
If it waits until the job market snaps, recovery will be far harder to engineer
US GDP remains robust (Chart courtesy of Exhibit A)
What would a September rate cut mean for markets?
Stocks would likely rally on a cut, with housing and rate-sensitive sectors like small-caps and financials seeing steady gains.
Risk appetite could continue to ramp up, though any retaliation from bond markets could limit the near-term upside.
US stocks are in the midst of an above-average post-election year (Chart courtesy of Exhibit A)
The bear case: Keep waiting
Inflation could still rebound
Producer prices jumped 0.9% in July, the sharpest monthly gain since 2022
Services inflation remains stuck near 3%
Tariffs are pushing durable goods prices higher
The labor market hasn’t cracked
At 4.2%, unemployment is still historically low
Claims are subdued, and employers are hoarding workers
Payroll weakness might be noisier and not as soft as consensus believes
Job openings have steadily declined in 2025 (Chart courtesy of Exhibit A)
The neutral rate is higher
Deficit spending, data center build-outs, reduced trade deficits, and elevated asset prices suggest rates must stay higher for longer
Cutting deeply could leave policy far too loose
Financial stability is at risk
Equity valuations are stretched, margin debt is over $1 trillion, and the S&P 500 trades at dot-com level valuations
Rate cuts could spark a stock market melt-up and trigger backlash in the bond market
Credibility is on the line
Cutting now could look like bending the knee politically
The danger is a replay of the 1970s, when cutting too soon opened the door to harsher tightening later
Inflation expectations have ticked up in recent months (Chart courtesy of Exhibit A)
What would no cut in September mean for markets?
Given the overwhelming expectations for a cut, holding steady would surprise markets and likely cause a sharp sell-off, particularly among mega-cap tech names where valuations are already at historic levels.
A more hawkish-than-expected Fed would likely flatten yield curves, boost the dollar and pressure risk assets.
Market snapshot
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Elsewhere
🏦 President Trump called for Fed governor Lisa Cook to resign. That followed a criminal referral letter filed by Bill Pulte, director of the Federal Housing Finance Agency, accusing Cook of mortgage fraud. Cook allegedly misrepresented two homes as primary residences to potentially “secure lower interest rates and more favorable loan terms” in 2021. (Barron’s)
🎯Target stock had a brutal trading day. News broke that Target’s COO will step up as CEO, and shares fell as much as 9%. Target earnings revealed its 11th straight quarter of flat or falling sales, and the company flagged tariff-related cost pressures. (WSJ)
⏱New Fed minutes show a divided central bank. The July meeting summary, released Wednesday, revealed the majority of officials see inflation as a greater risk than a weakening labor market. (CNBC)
Rapid-fire
TJ Maxx owner boosted its full-year outlook and reported strong sales (WSJ)
President Trump has spent at least $100 million on bonds since taking office (CNBC)
Intel stock dropped Wednesday amid reports the US could take a stake in the company (Barron’s)
Lowe’s beat earnings expectations and acquired Foundation Building Materials for $8.8 billion (WSJ)
Palantir stock is colliding with a rotating market and a scathing short seller (Opening Bell Daily)
Public companies valuations are growing because they’re becoming more efficient (Pomp Letter)
How two investors used social media to build an information hub for bitcoin treasury companies (CoinDesk)
Liberal lawmaker Bernie Sanders supports Trump’s plan to take stakes in Intel, other chipmakers (Reuters)
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Last thing
Morgan Stanley recently revealed the 30 stocks they believe will expand their competitive advantages through the year 2027.
Here is their full portfolio of stocks:
— #Dividendology (#@dividendology)
3:15 PM • Aug 20, 2025
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About me
📰 I’m Phil Rosen, co-founder and editor-in-chief of Opening Bell Daily. I’ve published books, lived on three continents, and won awards for my journalism, which has appeared in Business Insider, Fortune, Yahoo Finance, Bloomberg and Inc. Magazine.
I write our flagship newsletter to prepare you for each trading day — unpacking markets, economic data and Wall Street with analysis you won’t find anywhere else.
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