Debate gears up on timing of first Fed rate cut

With the ink barely dry on another unexpectedly weak US payrolls report, some traders are looking beyond Tuesday's Federal Reserve meeting to guess when the central bank might start trimming interest rates.
Many strategists say a rate cut could come between the fourth quarter of 2006 and mid-2007 as policy-makers respond to dwindling economic expansion, as shown by last week's report that US gross domestic product grew just 2.5 percent in the second quarter, well down from 5.6 percent in the first.
Still-rising prices leave the possibility an open question, and there is widespread debate about just how weak the economy will become.
Friday's July jobs report "is the first real hard data besides the second quarter's weak GDP report that supports the Fed's slowdown forecast," said Scott Anderson, senior economist at Wells Fargo in Minneapolis.
Current Fed assumptions are that below-trend growth will be confined mostly to the second half of 2006, an assessment seen as too upbeat by some economists. Others wonder if growth will moderate enough to clamp down on price pressures.
Interest-rate futures suggest rate cuts will take place before long.