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The Federal Reserve kicking off its easing cycle with a half point rate cut. Officials projecting they will lower interest rates by another half of a point before year end. But Fed chair J. Powell making it clear in his remarks that officials aren't on a preset course and will continue to make decisions meeting by meeting. Here with us, we want to bring in Dennis Lockhart. He's a Federal Reserve Bank of Atlanta's former president. Dennis, it's great to have you here joining us this morning. So, the market taking it, at least, they're not too worried about maybe what this 50 basis point cut could signal just in terms of higher risk of a recession. What's your take and your reaction to yesterday's decision?

I I think it was on balance, an optimistic message. It was not necessarily a reaction to anything particularly wrong. I think the committee is increasingly confident that that inflation is under control and they like where the labor market is and they want to protect that. So there's it's it's really not a message of a reaction to things going haywire, it's more to preserve a good thing.

Take us into what the conversations with the thought processes typically like when you have this many committee members that are all in alignment and really just one dissenting vote.

Well, I I I think when when the the Fed pivots, it's certainly desirable to see pretty much a unified face and they they achieved that. One dissenting vote from a governor, I'd point out, and that's somewhat unusual. Governors usually don't dissent, they usually go along with the chair. But nonetheless, the the committee showed that uh, everyone supported 50. I'm sure there were some who argued for 25 in the meeting, but everyone was comfortable with the 50 basis point move.

And Powell during his press conference, really emphasizing the fact that this is the start of this recalibration process. So, as we look ahead, what do you think, Dennis, that recalibration process more accurately looks like?

I think, um, it will be a meeting by meeting judgment of what the economy needs uh, with uh, some caution about uh, the ability to react, perhaps with a a deeper cut, if necessary to some development that comes along. Um, this morning's newspaper is, of course, talking about the potential for a longshoreman strike on the east coast. That would be a mini shock to the economy if it lasted very long. So I think they will feel their way along and there, as Chair Powell said, there is no preset path. Each meeting that they will decide what is the appropriate move.

So, then, Dennis, when we talk about what's necessary or, I guess, what the Fed would need to see in order to be comfortable with another 50 basis move. You talk about the fact that we see some sort of shock. What How would that then be reflected in the economy and the labor markets just in terms of the further deterioration, maybe that would be necessary in order to justify another big move?

Well, I think the way that they they're thinking about this is is they want to preserve as much uh, flexibility or optionality, is the word that's often used, um, as possible. Um, they I think emphasized that the 50 basis points move yesterday was like a down payment. Um, you could even argue it was a little bit of a ketchup from what could have been done in July. So, I I think the base case should be 25 basis point moves, not 50, and not and no pause in the in the outlook at the moment.

We We had an instant reaction from uh Rick Rieder of BlackRock, the Chief Investment Officer of the Global Fixed Income Group, and he had mentioned that the key takeaway from the move was that it will resonate through the financial system for the coming months is that the Federal Reserve will be lowering interest rates persistently for the next two years. What what do you think continues to need to play out over those next two years for it to make sense for cutting to be taking place for that protracted an amount of time, and ultimately what that does for the targets that they should be setting both for employment, for employment, excuse me, and inflation?

Well, for that to play out, uh without any pause, without any, uh, let's just say deviation from from the the mode of 25 basis points, or or you know, we're going to have to see the economy settle into a long-term um equilibrium that uh, that justifies a march to the neutral rate, which round numbers, I think is viewed as around 3%. So that I think that's what Rick Reeder is talking about. Um, and it could happen. But in my experience, there are always surprises. There are always things that come along that that take you off of that course.