As Federal Reserve officials gathered in Washington earlier this month, they also fiercely debated the pace of interest rate cuts.

The United States economy did not show the usual clear warning signals that would prompt an active response from the Federal Reserve. However, a series of employment data, including the August jobs report, showed significant weakness, leading Fed Chair Powell to believe that in order to prevent the risk of the labor market consistently deteriorating, it was necessary to cut interest rates by a larger margin than usual. Two inflation reports that week showed continued easing of price pressures, ultimately resulting in the decision to cut rates by 50 basis points.

When the Federal Reserve announced its decision on September 18, the forecast indicated that the vast majority of officials supported lowering the benchmark interest rate by a full percentage point or more this year, meaning at least one large rate cut. However, a significant number of individuals believed a reduction of 75 basis points would suffice, indicating support for three smaller rate cuts.

In the end, among the 12 voting members of the Federal Open Market Committee (FOMC), all but one supported Powell's aggressive start with a 50 basis point rate cut. This was a crucial victory for Powell as he sought to prolong an economic expansion that many had predicted was already over. The sole dissenting voice was Fed Governor Bowman, who called for a more moderate pace of rate cuts to avoid disrupting progress on inflation.

Mark Spindel, founder of Potomac River Capital and co-author of a book on the Federal Reserve and Congress, said: 'The Fed Chair always wields great power. Powell managed to get everyone on board except for Bowman, which is clearly a success story, making him a more powerful chair now.'

Powell stated in a post-meeting press conference that the 50 basis point rate cut was "a good and strong start," seen as reasonable from both an economic and risk management perspective.

Economists say that if the economy starts to slow down, another 50 basis point rate cut is not ruled out, as long as inflation cools and Powell prioritizes keeping the economy close to full employment levels. If labor market data disappoints again, Powell may have the opportunity in the coming months to once again persuade his colleagues to lean towards a 50 basis point rate cut.

Some officials have indicated in recent speeches that they are likely to support another 25 basis point rate cut, but they have also opened the door to a more significant rate cut.

Matthew Luzzetti, Chief U.S. Economist at deutsche bank, said: "Given his comments at Jackson Hole and what we heard at the press conference, yes, I think if the labor market weakens further, Powell would lean towards another 50 basis point rate cut."

Three key moments

In the past year, Powell has played a leadership role in three key moments:

He suggested that rates could peak in December 2023, at a time when some officials thought they might have to hike further.

In the first quarter of 2024, inflation unexpectedly surged, surprising many Fed officials. He then patiently kept rates steady until he was confident that price pressures were easing again. Some lawmakers complained that he was putting the economy at risk.

Finally, he opted for aggressive rate cuts as his first move.

All of these actions were guided by a strong awareness that high rates were cooling the economy, not crashing it.

He said at a press conference on September 18: "Whether we can successfully achieve these goals is related to all Americans." Powell described the rate cut as a form of insurance for further economic softening - a risk management move.

Powell said last week: "You can see this as our commitment to not falling behind. This is a strong move."

In the absence of an immediate crisis, a 50 basis point adjustment in interest rates by the Fed is not common. People are concerned that this will indicate increasing worries from the Fed about signs of economic softness.

Instead, Powell stated that this move indicates his belief that the inflation rate is expected to return to the 2% track, and he also rarely admitted that a larger move is his strong preference, expressing "satisfaction" with the decision.

The latest employment report not only shows fewer job additions by employers in August than expected, but also indicates that the pace of hiring is slower than the initial values of the previous two months. Employment decreased by 86,000 in June and July, with a three-month average hitting a new low since mid-2020.

Risk management is a strategic initiative advocated by former Fed Chairman Alan Greenspan, aimed at countering potential threats, even those that seem unlikely to materialize. As the Fed's benchmark interest rates remain in a restrictive area after a 50 basis point cut, some officials believe that the cost of a substantial interest rate cut is low.

Minneapolis Fed President Kashkari wrote in an article on September 23: "Even after a 50 basis point rate cut, I believe the overall stance of monetary policy remains tight."

Heated debate.

Powell's schedule shows that a few days before each FOMC meeting, he will discuss with all 18 officials. These discussions allow the officials to understand the chairman's stance.

Powell strongly supports a larger rate cut at the press conference, indicating that he was inclined to cut rates by 50 basis points a week before the meeting started routine discussions.

Some Fed officials who spoke after the meeting described the meeting and the preparation work before the meeting as heated debates.

"There were positive discussions at the meeting," Kashkari said in an interview with CNBC on September 23. "Clearly, there was a lot of discussion before the meeting."

Atlanta Fed President Bostic said that the two weeks before each FOMC meeting were times of 'intense discussion.'

During a Q&A session after a speech on September 23, he said, "If you want to achieve coordination, want us all to unite around an action plan, it will require a lot of communication, participation, and we have done a lot of this work."

Some officials believe there is reason to cut rates by 25 basis points at the September meeting. This includes Fed Governor Waller, one of the most influential members of the FOMC.

In a speech on September 6, Waller clearly stated his support for a rate cut, but many interpreted his precise wording as a reason for proposing a 25 basis point cut. He said in an interview with CNBC after the meeting that the report on consumer and producer prices published after the speech ultimately led him to support a 50 basis point cut.

Editor/Rocky