President Donald Trump on Monday made it clear that he wants more than a quarter-point interest rate cut from the Federal Reserve.
“A small rate cut is not enough,” Trump wrote on Twitter on Monday.
Most Fed watchers think the central bank will move in small steps, cutting rates by a quarter-point on Wednesday, while leaving the door open for more moves later this year.
Only a few economists, including Vincent Reinhart, chief economist at Standish, think the Fed should engineer a half-point cut.
In an interview with MarketWatch, Goldman Sachs chief economist Jan Hatzius said it would be odd for there to be only one quarter-point cut. But Hatzius and many other economists think the Fed might only cut twice, and disappoint a bond market that has three rate cuts priced in for this year.
The U.S. central bank doesn’t think it is embarking on a lengthy series of rate cuts at the moment, speeches from members have revealed. And aggressive rate cuts might signal a recession is imminent, which the Fed wants to avoid.
Instead, the Fed believes it is tweaking rates in order to prolong the expansion, more of an “insurance” cut.
The central bank doesn’t have a clear view of the road ahead, economists said.
“This early in the easing cycle, the Fed “itself doesn’t know how far it needs to go from here,” said Avery Shenfeld, chief economist of CIBC World Markets in Toronto, in an interview.
Shenfeld said that if the Fed only cuts rates once or twice, it would actually be good news for the president.
That would mean the economy is in reasonable shape in 2020.
“Not a bad outcome for Trump or equity markets,” Shenfeld said.
Stocks were mixed ahead of the Fed decision, to be announced on Wednesday at 2 p.m. Eastern and followed by a press conference from Fed Chairman Jerome Powell. The Dow Jones Industrial Average
was up 44 points to 27,236, but the S&P 500
was down 7 points to 3,018.