There is an undercurrent in economic circles right now and it basically boils down to: The Fed should cut 50 bps but it will probably cut 25 bps.
Rick Rieder from BlackRock was on Bloomberg earlier today making that point and CIBC touches on it in their review of the non-farm payrolls report, which they call mixed.
Overall, this is a tricky one for the Fed in terms of how quickly it dials back rates. Growth still looks solid, tracking around 2% for the quarter, and that mainly driven by the consumer once again. Also some part of the slowdown in job gains is due to population flows leveling off, and as they stabilize, we may end up at or slightly above break-even. Other labor market signals are clearly trending in that direction. If they place more weight on these arguments, which are admittedly partly backward looking, that would cause them to lean towards more normal sized cuts to start and signalling a clear path of rate cuts back to neutral. But if they want to try to get ahead of a further and large deterioration in the labor market, that would favor cutting more aggressively to start and then slow down.
They continue to forecast a 25 bps cut but this sentiment highlights why markets are so inclined to push for 50 bps.
