BlockBeats news, September 13, "Federal Reserve Mouthpiece" Nick Timiraos wrote in his latest article that Federal Reserve Chairman Powell is currently facing a difficult decision: Is the first rate cut 25 basis points or 50 basis points?
This week's CPI report showed that stronger housing costs weakened the possibility of a 50 basis point rate cut next week, but another report on Thursday showed that the Fed's preferred inflation indicator, the underlying price in August, may be much milder. At the same time, hiring in June and July was weaker than initially reported, while job growth in August improved. Next week's economic expectations are equally important: the quarterly economic forecasts that the Federal Reserve will release at its meeting next week may further complicate the issue. These forecasts will show how many times officials expect to cut interest rates this year.
Economist Foster, who served as a senior adviser to Powell, said the number of rate cuts in the next few months is much more important than the magnitude of the first action. The dot plot released next week is not the final product of the committee's debate, but it could be just as important to investors as the size of the rate cut, especially if officials opt for a smaller cut. With markets currently pricing in more than 100 basis points of rate cuts from the Fed 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.