Wall Street expects Powell to deliver a “hawkish rate cut” this week, as the Fed faces its biggest internal split in years.

On December 8, although another Fed rate cut is almost a foregone conclusion, the main question lies in how Powell will frame the outlook for further easing next month. As divisions among Fed policymakers deepen between increasingly hawkish and increasingly dovish stances, Powell will have to undertake a difficult balancing act at this week’s central bank meeting. Wall Street expects this to be a “hawkish rate cut,” meaning that after joining the dovish camp with a rate cut this month, Powell may avoid signaling a rate cut in January next year in order to appease the hawks within the Fed. Bank of America analysts stated in a report last Friday: “Powell is facing the most divided committee in recent years. Therefore, we believe he will try, as he did in October, to balance the expected rate cut with a hawkish stance at the press conference.”

At the same time, the Fed chair has consistently insisted that policymakers do not have a preset path and that rate moves will depend on subsequent data releases. As a result, Bank of America expressed doubt about whether Powell can so easily achieve a “hawkish rate cut,” considering the large amount of market-moving data to be released between the two meetings, some of which has been delayed due to a government shutdown. Similarly, JPMorgan Chief U.S. Economist Michael Feroli said he expects Powell to emphasize that after this week’s rate cut, rates will be close to a neutral level. Therefore, any additional easing will depend on a substantial deterioration in the labor market, rather than risk management considerations. (Jin10)