Remember, Jerome Powell told us last week precisely what signal he wants the market to take from the Fed's rate cut.
He said, they don't think they are behind the curve, and that the Fed's "strong move" should be taken "as a sign of [their] commitment not to get behind the curve."
Shortly thereafter the governor of the Bank of Japan said the uncertainty around the U.S. economy is the reason for unstable markets. And he said while soft landing in the U.S. economy remains the base case, "the data since early August has been weak, so risks have heightened somewhat."
Keep this all in mind as we consider the comments made by a lineup of Fed speakers since last week's meeting.
On Friday, Fed Governor Waller said he would support "big rate cuts" if needed. If the labor market worsens or inflation data softens quicker, he said he's fine moving in 50s to get to "where they want to go."
"Where they want to go," would be the neutral rate, which is much, much lower.
So, that makes "soft inflation" a condition for him. And not so coincidentally, he added that he sees inflation coming in soft for August, based on the inputs from the recent PPI and CPI.
Atlanta Fed President Bostic had commentary focused on the labor market. He says, "if the labor market deteriorates that is a reason for a faster pace to neutral."
Chicago Fed President Goolsbee said this: "Keeping rates at decade-high does not make sense when you want things to stay where they are."
That implies they want things to stay here (2%ish growth, 4.2% unemployment, and very near target on inflation). If that's the case, the "neutral rate" is where you want to be, to neither stimulate nor restrict economic activity. And he added, "we are 100s of basis points above the neutral rate."
So, from this commentary (including the Bank of Japan) we can deduce that both the unemployment rate and the (soft) inflation rate sit on thresholds that, if breached, would prompt an aggressive reaction from the Fed.
This all sounds like a Fed that knows they are behind the curve. They held rates for too high, for too long, which has put the economy in a vulnerable position — though they don't want to admit it publicly.
And if we take Powell's guide on this Friday's PCE report, it should come in at 2.2%. That would be a drop from the July reading of 2.5%. And that means, by holding rates steady in July (for the twelfth consecutive month), the Fed actually got 30 basis points tighter (more restrictive) in the month of August (i.e. as inflation falls and the Fed Funds rate stays steady, the "real interest rate" moves higher/policy gets tighter).
With that, they only accomplished maybe 20 basis points of actual easing out of their policy decision last week.
What we do know from all of this is that the Fed wants us to believe, unequivocally, that they are on high alert to protect the economy.
That should serve as a perceived safety net for hiring and investing.