Former Federal Reserve official warns: Fed's communication will be as important as its rate cut decisions

Three months ago, as the Federal Reserve was approaching its first rate cut since the pandemic, Powell outlined the factors affecting the U.S. economy. When asked about the easing pace in June, the Fed chairman told the media, "This is a decision with far-reaching implications, and we want to make the right choice." With concerns about inflation giving way to concerns about employment, the Fed is prepared to begin a series of expected rate cuts this week, bringing some relief to Americans after maintaining borrowing costs at the highest level in over 23 years at 5.25-5.5%. Alan Blinder, former Vice Chairman of the Federal Reserve under Greenspan in the early 1990s, said, "It is very likely that this is the beginning of a rate-cutting cycle that will last a long time, so this is a quite important meeting." For Powell, whether the Fed can avoid further weakness in the labor market and achieve a "soft landing" will be crucial in solidifying its legacy of navigating the global financial system through the largest contraction since the global financial crisis and the most severe inflation crisis in decades. Blinder pointed out that the current Fed leadership has had to deal with the COVID-19 pandemic, the Russia-Ukraine conflict, and more severe inflation, "Greenspan was a god back then, but compared to the challenges they face now, that was easy. If Powell achieves a soft landing, he will go down in history." The success of the Fed may largely depend on how quickly it can return monetary policy to a more "neutral" level. If the easing is too fast, the Fed may entrench high inflation; if too slow, it may lead to unnecessary economic losses. In addition, historical wage gains after the impact of the COVID-19 pandemic and the November U.S. presidential election may also be affected, with Harris and Trump's support rates currently neck and neck. The Fed made a decision early Thursday to cut rates by 25 basis points or 50 basis points, with futures markets pricing the probability of these two possibilities equally. Julia Coronado, former Fed economist and President of MacroPolicy Perspectives, said, "There is reason to believe that the U.S. economy can achieve a soft landing with appropriate policies. I advocate starting with a significant 50 basis point rate cut and lowering policy rates by a full 100 basis points within the year. It is expected that the Fed will further cut rates by 1.5 percentage points by the end of 2025." William English, former head of the Fed's Monetary Affairs Division and professor at Yale University, stated, "Communication will be key, and it will be as important as the decisions they make." He said, "If they cut rates by 25 basis points, they will want to clearly indicate that they are not lagging behind the situation and are not turning a blind eye to the economic conditions, and will act swiftly when necessary; if they cut rates by 50 basis points, they want to show that they are not rushing towards neutral rates." He warned, "Both directions are prone to mistakes." Ellen Meade, who served as a senior advisor to the Federal Reserve Board until 2021, cautioned that neither option is likely to garner unanimous support. She said, "Divergent views are actually helpful in the decision-making process, as they can help examine an issue more comprehensively. However, if there are more than two officials with differing opinions on an interest rate cut decision, it will attract public or more attention."