Fed Watch – 8/29/2025

with lauren saidel-baker

WEEKLY FED WATCH

This week on Fed Watch, Lauren Saidel-Baker discusses Chair Powell’s direct signals from Jackson Hole that a September rate cut is likely, reviews the latest Q2 GDP data, and explains how tariff-related import timing shaped growth. She also examines rising political pressures on the Fed, including a potential Supreme Court challenge to its independence, and cautions that uncertainty could affect long-term rates as new jobs and inflation data approach.

Key Episode Takeaways

  • 0:01 – Powell’s Jackson Hole comments and September rate cut signals
  • 0:56 – Q2 GDP data and import timing effects
  • 2:03 – Political pressures and potential Supreme Court challenge
  • 3:52 – Market confidence and Fed independence concerns
  • 4:28 – Upcoming jobs and inflation data
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Because so many imports were pulled in pre-tariff in that first quarter GDP data point, that's why we saw it go so low in the first quarter. – Lauren Saidel-Baker Share on X
A lot of the market doesn’t want to see Fed independence called into question—that’s really going to bring down confidence in the system. – Lauren Saidel-Baker Share on X

The below transcript is a literal translation of the podcast audio that has been machine generated by Notta.

Hi, I’m Lauren Saidel-Baker, and thank you so much for joining me for this August 29th edition of Fed Watch.

Not a quiet end to our summer here in late August. Since we spoke last Friday, we got Chairman Powell’s comments from Jackson Hole, which as far as Chair Powell goes, those were about as blunt as he could be that a rate cut is firmly on the table for September. So, saying that we may need to reassess policy, for him, that’s a pretty good signal, and the market did take it as such. So as the odds stand today, 25 basis points in September seems pretty much baked into consensus expectations. Again, we will get new jobs numbers next Friday. We will get some additional inflation data before that meeting takes place, so stay tuned to follow the latest and greatest data while keeping in mind that one month of data never makes a trend.

Now beyond that point, we also got some GDP data out this week. That was the second estimate of the second quarter GDP numbers. No big change there, 3.3% is the headline figure. It’s no surprise. We saw good growth, steady growth in that second quarter of 2025. A lot of it, again, when we compare that second quarter to first quarter, that sequential growth rate, keep in mind there was something of a bounce back effect. Because so many imports were pulled in pre-tariff in that first quarter data point, that’s why we saw it go so low in the first quarter. There was always going to be some amount of reciprocity in the second quarter. We did that import activity in one queue, so we didn’t need to do it again in two queue. Keep in mind, we at ITR prefer to look at things on a not-seasonally adjusted basis. We have a lot more detail on a recent blog post about just how we do that calculation and what it means for GDP. I’ll point you over to the blog at ITReconomics.com if you really want to delve in the nitty-gritty of that data calculation.

But coming back to the Fed, what does this mean? Well, steady growth, that’s no surprise to anyone. Again, some timing offset with those figures, especially as it relates to imports. So the big pressure at this moment is the push-pull from the political side of the equation to the balancing of that dual mandate. Now, we have seen a little bit more movement than is usual in Federal Reserve or FOMC members. So we thought we had avoided a Supreme Court case when President Trump backed down from his threats to fire Chair Powell. There was a lot of question about whether he could even fire Chair Powell. He didn’t push this, so we didn’t get an answer, but we might get an answer in a slightly different case. So the administration did some digging into various Fed officials it seems, and they found something with Lisa Cook. There are alleged irregularities in some of her mortgage documents dating back years.

So the question is now, does that constitute cause as it stands in legal literature for President Trump to fire her from her position? He says yes, her lawyers say no. And it seems like we might get a case. This could go all the way up to the Supreme Court. Today, ruling law of the land is a 1935 Supreme Court case called Humphrey’s executor. Fascinating legal history there. But essentially, the question is the Federal Reserve and other groups like them seem carved out from this ability of the president to fire these officials. So at the end of the day, that’s what President Trump is challenging. We shall see if the question gets that high. At this point, again, in late August, it does seem that we’re pushing in that direction.

This will be a fascinating legal case. But at the end of the day, what it means for interest rates and for your business more specifically is a bit more uncertainty. A lot of businesses, most of the market doesn’t want to see Fed independence called into question. That’s going to really bring down confidence in the system. So to see these additional political pressures, we haven’t seen a massive market movement yet. But I’m concerned if things do get to that point, we might see a little bit more flow through, especially in the long end of rates. That’s where I will be personally watching the market reaction.

Until then, a lot more data. We’ll be back with the new jobs numbers next Friday. Again, more inflation yet to come. And I hope you stick with us here on ITR Economics Fed Watch. Take care.