This week, the Federal Reserve is likely to cut rates by 25 basis points, and the latest "dot plot" may be revised.
"New Federal Reserve News Agency" Nick Timiraos published an article titled (Federal Reserve's Rate Cut Plans are Constantly Changing) this Monday (Eastern Time, or Sunday) whose timing is consistent with our expectations; it is clearly authorized by the Federal Reserve.
1. The summary text under the main title of the article encapsulates its main idea: Investors generally expect a third rate cut this week, after which officials are prepared to slow down or even stop rate cuts—this is likely the signal the Federal Reserve is about to send to the world this week.
2. The opening part of this article is unusual, focusing not on economic issues, but on how Powell persuades officials who are skeptical about continuing rate cuts. Whether to cut rates or pause them, Powell's biggest challenge is how to unify internal opinions and ultimately present a policy statement to the outside world without divergences. Before each meeting, Powell talks individually with officials to gauge everyone's sentiments. After the meeting begins, Federal Reserve staff first provide reports and analyses, followed by a question and answer session, with the overall tone of the meeting set by Powell.
3. The article quotes former senior advisor to Powell, Jon Faust, stating: "At present, either cutting rates or maintaining them is reasonable." Therefore, compared to the interest rate cut in December (which is no longer significant), the Federal Reserve is more concerned about the future path of rate cuts.
4. The article states that some officials have indicated they will oppose rate cuts this week—if this is the case, it could be the most divergent meeting since the start of the inflation-fighting cycle in 2022.
The Federal Reserve is currently divided into two factions:
· One faction believes (the inflation-worried faction) that if the inflation rate remains above the target level for the fourth or fifth consecutive year, the credibility of the Federal Reserve will be damaged, and therefore opposes rate cuts.
· Another faction believes (the balancing faction, including Powell himself) that there is currently no risk of excessive interest rate cuts by the Federal Reserve.
5. Currently, the market has not fully understood Nick Timiraos's article, so there has been little reaction. However, caution is needed as the New York trading session progresses into the evening.
The reason the Federal Reserve is using the news media to send signals is to prepare the market and avoid major surprises.
