As discussed here on Tuesday morning, I think the odds of a Fed cut at the July FOMC meeting are perhaps higher than some market participants are inclined to believe.

Admittedly, that’s contrary to the new dot plot (which found seven officials penciling in no cuts for 2025) and it doesn’t line up well with the new SEP (in which the median core PCE projection rose to 3.1%).

But the realized inflation data’s soft, which means Fed hawks are relying entirely on inflation forecasts to inform their views. If those forecasts aren’t borne out, then leaving policy in restrictive territory’s a gamble, and a risky one at that given the length of time between the July meeting and the September gathering.

This debate — July versus September — isn’t inconsequential. It’s tempting to scoff at the notion that 25bps makes a difference either way. If the cut itself doesn’t matter, then debating the timing is even more asinine. But here’s the thing: A July cut could be sold as an “insurance” cut, which is to say as the Fed staying ahead of the curve, whereas waiting until September means rolling the dice on two NFP releases.

If the Fed doesn’t cut next month, and the labor market and/or the broader economy slows materially in the interim period between July and September, Donald Trump’s going to lose his mind. Not that the Fed should care what Trump says about monetary policy, but if you can cut, and if there’s a decent chance you should cut, why give him an excuse to do something everyone, including him, is going to regret — like taking steps to remove Powell or otherwise attempting to establish more in the way of direct control over policy deliberations?

Have a look at the charts below, which are just the BBG screengrabs Nomura’s Charlie McElligott used in a Tuesday note.

On the left is the Bloomberg US economic surprise index. On the right are the components. They speak for themselves.

Simply put: It’s probably time to get this show back on the road if you’re Powell. Cutting next month by 25bps isn’t going to rekindle the inflation impulse by itself. No one argues that, and if the jobs numbers between July and September are good and inflation doesn’t moderate further, the Fed can always pause, reassess and work through the SEP and the September dots to convey whatever they want to convey.

Whether this is germane for the broader economy, it’s certainly relevant for market sentiment. “As far as the ‘cuts are bullish for equities’ tailwind thesis goes, it really matters if we’re talking about those ‘insurance-y’ Fed cuts driven by the recent disinflation or, alternatively, deeper Fed cut pricing being driven by the recent data deceleration,” McElligott wrote.

It’s worth noting that July is the sixth anniversary of Powell’s first “insurance cut.” Then, as now, Trump was engaged in a trade war. Then, as now, he was hell-bent on rate cuts. The difference is that in 2019, the Fed was concerned about undershooting its inflation target.