Trump's potential Treasury Secretary candidate Paulson: The Fed is expected to cut interest rates to 2.5% by the end of 2025
Billionaire John Paulson said the Fed has waited too long to cut interest rates and he expects the Fed to cut interest rates in the coming months. Paulson, 68, said in an interview with Bloomberg TV that by the end of next year, "my most optimistic estimate is that the federal funds rate will be around 3%, maybe 2.5%."
Paulson, who is known for his aggressive shorting of mortgage bonds before the 2008 financial crisis, has been considered one of Trump's possible candidates for Treasury Secretary if he is elected president.
On Thursday, Paulson attended an event at the Economic Club of New York with Cantor Fitzgerald LP CEO Howard Lutnick and Key Square Group LP's Scott Bessent.
A report in The Wall Street Journal earlier this year said that Trump's advisers are considering ways to reduce the independence of the Federal Reserve. Paulson said it is important for the president and the Treasury secretary to be able to comment on economic policies, including interest rates.
Paulson said rising real interest rates (the difference between current bond yields and inflation) suggest the Fed is behind the curve in easing monetary policy.
Markets are anxiously awaiting tonight's nonfarm payrolls report to gauge the Fed's interest rate path.
Friday's U.S. nonfarm payrolls will be the biggest test for those who have made bold bets on a 50 basis point rate cut in September. Forex traders have never been so excited ahead of the U.S. jobs report in more than a year.
Options that measure the dollar's performance against major trading partners hit their highest level since March 2023 ahead of the release of the key nonfarm payrolls data. Risk reversals show bearish sentiment on the dollar. Since the weaker-than-expected July nonfarm payrolls data on August 2, Citigroup and JPMorgan have been predicting a 50 basis point rate cut in both September and November and a 25 basis point cut in December. Interest rate swap contracts show that the probability of the Federal Reserve cutting interest rates by 50 basis points at the September 17-18 meeting is about 35%, but traders and economists believe that a 25 basis point cut is the most likely.
