New Fed Debate -- 25 or 50 BP Cut

Following the softer FOMC Statement, the debate in the markets now appears to be whether the Fed will cut by 25 or 50 BPs at the July FOMC Meeting.  Powell, at his press conference, was a bit two-handed in this regard.  He agreed that the Fed should act sooner and more aggressively than otherwise because the funds rate is so close to the zero bound.  But, he also cautioned that the Fed will not react to any specific piece of information.  It will need to have a broad sense of economic softness.

While the Statement and market analysts focused on low inflation as a reason to ease policy, the real-side economic evidence may very well be key to how aggressive the Fed will be -- assuming core inflation remains low.  Core Durable Goods Orders (Durable Goods Excluding Civilian Aircraft) will be important, given the Fed's emphasis on softening capital spending.  Also, sustained gains in Retail Sales will confirm the Fed's view that consumer fundamentals are good.  Initial and Continued Claims will be important.  Renewed downtrends in them might even stop the Fed from easing.