Investors are counting on Jay Powell to keep Fed rate cut plans on track

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Investors are counting on Federal Reserve Chair Jay Powell to keep rate-cutting plans on track this week with a 25 basis point reduction, despite some signs of stubborn inflation and mixed signals about the job market.

"[This] week’s FOMC meeting is a refreshingly easy call," JPMorgan Chase (JPM) chief economist Michael Feroli said in a note. "The reasoning for a cut is still valid," he added.

That doesn’t mean the discussion among members of the Federal Open Market Committee on Wednesday and Thursday will necessarily be a smooth one. Fed policymakers will have to make sense of recent data indicating a strong economy, persistent inflation and a muddled jobs market disrupted by weather and worker strikes.

There could be a debate between those who want to cut, those who could support a pause, or those who would support a cut combined with language designed to communicate a more gradual approach to future reductions.

Fed watchers expect Powell to forge a consensus around the small cut, following a jumbo-sized reduction in September.

"We look for Fed Chair Powell to once again be the voice of reason corralling the FOMC to prudently ease monetary policy," said EY Chief Economist Gregory Daco.

FILE - Federal Reserve Board Chairman Jerome Powell speaks during a news conference at the Federal Reserve in Washington, on Sept. 18, 2024. (AP Photo/Ben Curtis, File)
Federal Reserve Board Chairman Jerome Powell. (AP Photo/Ben Curtis, File) · ASSOCIATED PRESS

"I don't think that there’s very much that has changed people's opinions," added Wilmington Trust chief economist Luke Tilley, who also expects a 25 basis point cut this week.

Traders agree. They are pricing in a near 100% chance of a 25 basis point cut. The Fed in September predicted two more small cuts for the remainder of 2024.

Former Kansas City Fed president Esther George said a pause in November would be a hard sell.

"If they skip this meeting, what would be the explanation," George said in an interview. "Given that they made such a hard turn for September with a 50 basis points cut, you really have to have a story to tell about why you'd either skip a meeting or explain why you want to slow down."

George expects to see the 25 basis point cut this week and predicts Powell will then explain at his post-meeting press conference that the Fed decided to cut in the face of a strong economy to sustain that performance, echoing comments the chairman made on Sept. 30.

"I think what we're going to hear is: 'and we want to keep it that way,'" George said. "We are not looking to see softening.'"

Complications

What could be a divisive topic for some policymakers this week is the latest reading from the central bank’s preferred inflation gauge.