US OUTLOOK/OPINION: 50bp Cut Blackout Talk Contrasts With 2022 Episode (1/2)

How seriously should markets regard today's article by the Wall Street Journal's Nick Timiraos ("The Fed's Rate-Cut Dilemma: Start Big or Small?") as a steer to markets of the Fed signalling a surprise 50bp cut next week? The article notes re next week’s meeting that the FOMC “are confronting questions over whether to cut by a traditional 0.25 percentage point or by a larger 0.5 point.” Most attention seems to be on the article quoting ex-Powell adviser Jon Faust saying it's a "close call" between 25bp and 50bp. Pricing has shifted to around 20% probability of a 50bp cut, vs <10% earlier today, basically reversing the pricing out seen after yesterday's stronger-than-expected core CPI data.

It is clear now, if it wasn't before, that there will be a Committee discussion about going 50bp, much like there was a discussion in July about cutting 25bp. But it’s worth comparing with the very clear steer in the consequential June 2022 Timiraos special - which in turn was seen as an obvious signal he'd heard from somebody on the FOMC, because earlier the same day he had published an article noting that they would likely go 50. The article in question, “Bad Inflation Reports Raise Odds of Surprise 0.75-Percentage-Point Rate Rise This Week”, noted the Fed would “consider surprising markets with a larger-than-expected 0.75-percentage-point interest-rate increase".

That was an extraordinary set of circumstances. Just looking at the difference between the most recent payrolls data last Friday which was pretty much in line, and CPI that was above expected - and that CPI report back in June 2022 which came out in the middle of the blackout which included huge CPI beats across the board (headline 0.97% M/M vs 0.7% consensus, core highest in a year, OER multi-decade high).