Fed faces dilemma over 25 or 50 bps in September, says Timiraos of WSJ By Investing.com

Investing.com– The Federal Reserve faces a dilemma over whether to cut interest rates when it meets next week, the Wall Street Journal’s Nick Timiraos said, as the decision comes amid a weakening labor market and recent signs of persistent inflation.

The central bank is set at , with markets split between a discount of 25 or 50 basis points. Some persistent inflation data released this week favored the prospect of a smaller cut of 25 bps, it said.

But Timiraos said recent data provided mixed signals on the US economy and that the Fed’s outlook on the economy, presented at next week’s meeting, could further complicate matters.

Timiraos earned the nickname “the Fed whisperer” from some publications and market participants after accurately predicting each of the Fed’s interest rate decisions starting in 2022, when the central bank raised rates to a two-decade high and -maintained there for 14 months.

Media reports have suggested that the Fed even relayed its planned decisions to Timiraos, who is the WSJ’s chief economics correspondent and leads the publication’s coverage of the Fed and US economic policy.

Timiraos said the Fed was “nervous” about keeping interest rates high for too long, amid growing evidence that higher rates are cooling the economy as intended. The central bank was still fighting for a soft landing, where inflation is falling while the labor market remains resilient.

He said quarterly economic forecasts released next week could provide more clues about how many rate cuts officials expect this year, with two more meetings left after September.

Markets expect the Fed to cut rates by more than 100 bps this year, with any signs of a smaller cut likely raising the risk of a “market pullback,” Timiraos said.

He noted that the central bank usually preferred to move rates by a margin of 25 bps.

Despite uncertainty over the extent of the cut, the Fed is still widely expected to start cutting interest rates when it meets next week, following signals from Chairman Jerome Powell and other officials.