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after the us cpi data was released last week, nick timiraos, a well-known macro journalist known as the "fed's mouthpiece", wrote that the fed is likely to cut interest rates by 25 basis points. but just a few days later, his opinion changed again.

on tuesday local time, which was also the eve of the release of the federal reserve's interest rate decision, timiros once again wrote that the federal reserve will definitely cut interest rates this week, but it is still unclear whether the cut will be a larger 50 basis points or the traditional 25 basis points. the suspense was left to the last minute, and powell and his colleagues needed to weigh it carefully.

timiros pointed out that economic data over the past few months showed that inflation was steadily falling. however, the labor market has cooled, with the unemployment rate rising to 4.2% in august from 3.7% at the end of last year. monthly employment growth fell to an average of 116,000 in the three months ending in august from 212,000 in december last year.

the fed's goal is to maintain a robust employment situation while easing inflationary pressures, but how to balance the two now becomes a problem.

english, a former senior adviser to the federal reserve, said: "the key issue for fed officials at this meeting is the perception of the balance of risks. if they are more worried about economic growth and employment than inflation now, then they are likely to want to be more safe, and a 50 basis point rate cut is appropriate."

the smaller 25 basis point rate cut was based on different considerations, including that economic fundamentals are sound, or that a rate cut too quickly could trigger a rise in risk appetite, keeping inflation high.

english claimed that a few weeks ago, he thought a 25 basis point rate cut was appropriate. however, the recent downward trend in labor market data has made him somewhat uneasy, especially since even after two or three rate cuts, interest rates will still be at a relatively high level.

timiros mentioned that fed officials tend to raise or lower interest rates by 25 basis points to study the impact of these measures. however, they will act faster when they believe that their interest rate stance is inconsistent with the balance of risks. for example, during the epidemic, fed officials raised interest rates sharply to deal with high inflation.

tough decisions

in fact, late last week, investors generally expected the fed to cut interest rates by 25 basis points, but then many media, economists, and even members of congress spoke out, calling for a larger rate cut.

for example, former new york fed president dudley said last friday that a 50 basis point rate cut is still possible at next week's fed meeting. "i think there's a strong case for a 50 basis point rate cut. i know what i'm fighting for."

in a letter to powell on monday, senators elizabeth warren, sheldon whitehouse and john hickenlooper said the committee must consider more aggressive 'front-loading' of rate cuts to mitigate potential risks to the labor market.

ed hyman of evercore isi, one of wall street's most followed and respected economists, expects the fed to cut rates by 50 basis points on wednesday and ultimately achieve a soft landing. "i would be shocked if they didn't cut rates by 50 basis points tomorrow."

timiros said just as important as the fed's decision on how much to cut this week will be its quarterly economic forecasts, which show where officials expect interest rates to be at the end of the year. if more officials expect a total of 100 basis points of rate cuts this year, that would mean at least one 50 basis point cut this year.

but waiting until later in the year to make a larger rate cut could raise an awkward question about why that is the best course of action.

all in all, this week's policy decision is a tough one, with the possibility of a dissenting vote among the 12 policymakers who vote on policy, and no fed governor has dissented from a rate decision since 2005.