According to BlockBeats, on September 13, “Federal Reserve Mouthpiece” Nick Timiraos wrote in his latest article that Federal Reserve Chairman Powell is currently facing a difficult decision: should the first rate cut be 25 basis points or 50 basis points?
This week’s CPI report showed stronger housing costs weakening the odds for a 50 basis point rate cut next week, but another report Thursday showed underlying prices, the Fed’s preferred inflation measure, were likely much more modest in August. Meanwhile, hiring was weaker in June and July than initially reported, while job growth improved in August. Next week’s economic expectations are equally important: The Fed’s quarterly economic projections, which will be released at its meeting next week, could further complicate matters. Those projections will show how many rate cuts officials expect this year.
Economist Foster, who served as a senior adviser to Powell, said the number of rate cuts in the coming months will be much more important than the size of the first move. The dot plot released next week is not the final product of the committee’s debate, but it may be as important to investors as the size of the rate cut, especially if officials choose a smaller reduction. With markets currently pricing in more than 100 basis points of rate cuts this year, a smaller-than-expected rate cut could lead to a market correction that tightens financial conditions and pushes up borrowing costs just as the Fed cuts short-term rates.
