A Fed rate cut looks more likely

Federal Reserve Chairman Jerome Powell and his colleagues face three decisions when it comes to reducing interest rates - whether to do it, when to do it and by how much.

Fed watchers say an unexpectedly weak reading on the U.S. jobs market in May makes it increasingly likely that the central bank will lower rates this year. That would be despite President Donald Trump's decision late Friday to call off his threatened tariffs on Mexico.

What's less certain is when the Fed will act and how big any cut will be - a more traditional 25 basis point move or a bolder, 50 basis point reduction designed to get a bigger bang for the buck.

'We obviously feel more confident that they're going to be easing,” JPMorgan Chase chief U.S. economist Michael Feroli said after news on Friday that payrolls growth slowed abruptly in May.

He expects the central bank to lower rates by a quarter percentage point in September and December, even with the U.S. immigration deal with Mexico that forestalled the threat of U.S. import tariffs on Mexican goods.

Trump criticized the Fed during a CNBC interview Monday, renewing his complaint over rate increases last year and calling it 'very, very destructive.”

The feeble jobs numbers came on the heels of soft data on retail sales, factory output and home purchases and occur against a background of Trump's escalating trade war with China.

Powell and his colleagues are expected to begin initial discussions on the rate cut decision tree at their upcoming meeting, though they're seen as unlikely to reach a conclusion at the June 18 and 19 gathering.

Instead, economists say, policy makers probably will revamp their post-meeting statement to indicate their openness to easing policy, perhaps as soon as the July 30 and 31 gathering.

'The Fed will likely send a very dovish message at the June meeting,” Bank of America economists Joseph Song and Michelle Meyer said in a June 7 note to clients.

Gone will be the promise of policy patience that's characterized Federal Open Market Committee statements since January.

In its place is likely to be something more along the lines of what Powell said last week - namely, that the Fed is 'closely monitoring” the economy and is ready to 'act as appropriate to sustain the expansion.”