The Fed looks poised to cut rates for the first time in over a decade in its next policy-setting meeting on Wednesday. If it does, Chairman Jerome Powell may have to clarify his explanation of “data-dependence” as the central bank weighs future moves.

Key data points appear to have improved since the Fed’s June meeting where it held rates steady, meaning that Powell will be closely watched for how he justifies easing policy if the Federal Open Market Committee does cut rates at the conclusion of Wednesday’s meeting.

UBS wrote July 24 that Powell “clearly wants to cut rates” and pointed to “downplayed” commentary from Fed speakers over the strength of data received since June.

“This data independence speaks of a desire to cut rates independent of the current state of the U.S. economy,” UBS said.

An estimate-beating June jobs report and GDP print, in addition to data pointing to a robust consumer, have raised questions about whether the data truly warrant a need for lower rates for the time being.

Fed Vice Chairman Richard Clarida, who leaned on the “data-dependence” phrasing beginning at the end of 2018, has said the Fed does not need to wait until the “data turns decisively” before moving on rates.

For the Fed, telegraphing a coming rate cut as an “insurance” cut requires some judgment that data may not reflect coming risks, which aligns with the Fed’s efforts to “act as appropriate” to sustain the economic expansion. But has the Fed’s messaging on a rate cut been so strong that it requires overriding short-term observations in the data?

Communicating a cut

As of Monday afternoon, markets were pricing in a 76% chance of a 25 basis point rate cut, with a 24% chance of a 50 basis point cut.

UBS is one of the few shops on Wall Street predicting a 50 basis points on Wednesday. UBS said Clarida’s speech right before the Fed blackout began was an effort to amplify a strong dovish tone for the July meeting.

“Communication, not data, drives our call,” UBS wrote.

FOMC-voter and St. Louis Fed President James Bullard had an explanation along these lines on July 19. Downplaying the “good and encouraging data,” Bullard said the economy still appears headed for a slowdown and said policymakers need to deliver on the rate cut that it had signaled in June.

“You do have to ratify that at this point and follow through,” Bullard said.

Other analysts give more credit to the Fed’s sensitivity to data received since June. Nomura wrote July 25 that “strengthening” data reduced the case for a 50 basis point cut in favor of a 25 basis point move instead.