The Upshot: Bruce Steinberg and the Bully Pulpit

When Bruce Steinberg talks, should anybody listen?

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On the heels of today's weak employment data, the Merrill Lynch chief economist indicated (with some hedging) that he thinks the Federal Open Market Committee could well cut rates before it meets again May 15. "We believe this report will pressure the Fed to move and increases the likelihood the Fed will ease next week," Steinberg wrote in a note this morning. "Recent remarks have been they did not want to ease until May. We think this report was too weak in and of itself to permit them to wait until May. We would look for a 50 [basis-point] cut possibly next week."

This all recalls late February, when Bear Stearns chief economist Wayne Angell put the odds of an intrameeting cut at 80% -- something that got him a lot of media time, but ended up being flat wrong. Yet Steinberg is a different animal than Angell, who gets (or got) Wall Street's ear because as a former Fed governor he is believed (or until February was believed) to have an inside line on the goings-on at the Fed. Unlike Angell, Steinberg's economic work does garner some modicum of respect: Last year he was a third-place finisher on Institutional Investor's widely followed (if deeply flawed) analyst rankings survey.

What's more important about Steinberg's suggestion that the Fed could cut next week (maybe, possibly, he thinks...) is where he works. Merrill has the biggest retail brokerage operation in the U.S., so Steinberg has a bully pulpit: When someone at Merrill makes a big call, it gets passed around pretty quickly. Right now one of the brokers in the firm's Kalispell, Mont., office is on the phone with a client, relaying what Steinberg thinks might possibly happen. Same thing could be happening in Fond du Lac, Wis., in Clayton, Mo., in Cool Springs, Tenn. Mother Merrill says the Fed might cut intermeeting, and a lot of the country's investors start thinking it will happen. And in some incremental way, that increases the chances that it actually will.