Why a 25bps cut is easier for Powell to defend than a 50

Shortly after the Federal Open Market Committee reveals its decision on interest rates, Fed Chairman Jerome Powell will answer questions from reporters.

Former Wall Street Journal Fed reporter Jon Hilsenrath, who now runs Serpa Pinto Advisory, thinks that "the messaging is a lot easier" if the Fed cuts by 25 basis points because Powell can still make the case that the economy is strong and they don't have to rush to cut rates. He says if they cut by 50 basis points, Powell will likely have to answer harder questions about moving too aggressively or concerns that the economy is slowing than they thought.

Hilsenrath thinks the Fed will cut by 50 basis points. Find out why in the video above.

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This post was written by Stephanie Mikulich.

Transcripción del vídeo

For what investors should take out of tomorrow's presser or maybe it's the sep, I mean, what do you think the key sort of takeaway is that people should be listening for from Powell or does it matter more exactly what we're seeing in that dolo?

Well, you know, so this is where the half versus a quarter plays out because the messaging is a lot easier if they do a quarter, uh if they do a quarter, then they say, well, you know, we think the economy is fundamentally strong.

We don't need to be in a mad dash to cut interest rates.

We're gonna do this in a really predictable way and increments of a quarter percent every meeting for the next eight meetings that gets you your 2% points.

If they do a half, it raises all kinds of questions and I think they're gonna do a half, but the messaging is a lot harder and he's gonna get questions like, well, why are you moving so aggressively?

Are you worried that the economy is slowing more than your forecasts imply?

Uh Isn't this an awfully political thing to do, uh you know, to move?

So aggressively right before an election.

Are you acknowledging by going a half that you should have gone, done something at the last meeting.

So I think his messaging is gonna be real, is gonna be tougher doing a half than a quarter.

So then you raise the question.

Well, why are they doing a half then?

And the bottom line for me there is that they've just got work to do, they've got a long way to go, to get to down two full percentage points in a year.

And it makes sense to do your biggest cuts when you're farthest away from neutral.

This is the farthest they're gonna be from neutral.

So they're doing their biggest cut first.