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The ground has shifted in the debate over the economy with Wall Street now projecting that the Federal Reserve will begin to cut interest rates in a matter of months after more than a year of steep rate hikes.

The Fed easing off the economy could be great news for President Joe Biden in his struggle for reelection. But that depends on a broader question: What will it actually take for the Fed to lower rates? So far, top officials have played coy, with Fed Chair Jerome Powell saying Friday that it was “premature” to be having that conversation yet.

The central bank is aiming for 2 percent inflation, and currently its preferred inflation gauge sits at 3 percent — a vast improvement over last year, but still not quite there. Powell said this summer, though, that he and his fellow policymakers would cut borrowing costs before inflation got all the way back to 2 percent — to avoid overdoing it.

A lot of Wall Street chatter suggests people expect rate cuts once unemployment rises markedly and/or the economy enters a recession. But it’s not clear that would happen unless the Fed is also confident that inflation is also beaten, harkening back to onetime Fed Chair Paul Volcker.

“The 1970s is still deeply embedded in the Fed’s psyche right now,” former Fed economist Claudia Sahm said, and the lesson from that time period was: “The unemployment rate would start to rise a little bit and the Fed would cut and then inflation came back, and it came back worse.”

That’s a lesson they won’t be quick to forget. “Volcker’s still in the building at the Fed,” she said, adding that the last thing they want is to cut rates only to have to raise them again afterward.

What about the reverse scenario, where inflation is coming down but the unemployment rate is roughly stable? Fed Governor Christopher Waller, one of the central bank board members most inclined toward rate hikes during this bout of inflation, has suggested that scenario is possible. His reasoning: Even if the Fed holds its main policy rate where it is, as inflation comes down, rates are rising from an inflated-adjusted perspective.

“You could then start lowering the policy rate just because inflation is lower,” Waller said last week at the American Enterprise Institute. “It has nothing to do with trying to save the economy or recession.”

That makes some sense, since lower inflation would mean the Fed no longer needs to hold rates at punishing levels and can bring them safely back to “neutral.”

But “I’ve been somewhat skeptical of that story, and the idea that the Fed would be willing to cut rates on an inflation story alone, unless they were also seeing softening in growth and labor market data,” said Matt Luzzetti, chief U.S. economist at Deutsche Bank.

After all, if the economy isn’t weakening, Luzzetti said, it might mean, at least in the short term, that growth is strong enough to withstand higher rates.

The most likely scenario — relevant for Biden — is that unemployment rises slightly, growth slows to a low positive number (a soft landing) or a low negative number (mild recession), and the Fed eases off. Not exactly the dream scenario for an incumbent president, but it might be unnoticeable enough to prevent his approval rating on the economy from getting even worse than it already is.

It’s somehow December already — On the first week of Christmas, the Fed is hoping for a not-too-hot jobs report.

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Tuesday … The FDIC holds a meeting of its Systemic Resolution Advisory Committee at 9 a.m. … The House Financial Services Digital Assets, Financial Technology and Inclusion Subcommittee holds a hearing on fostering financial innovation at 10 a.m. … The Brookings Institution holds a virtual discussion on bank capital at 11 a.m. …

Wednesday … The Senate Banking Committee holds a hearing with big bank CEOs at 9:30 a.m. … The House Financial Services Housing and Insurance Subcommittee holds a hearing on housing affordability at 10 a.m. … The House Ways and Means Oversight Subcommittee holds a hearing on the federal debt at 10 a.m. …

Thursday … Georgetown University’s Paros Center for Financial Markets and Policy holds an event on crypto policy with Jay Clayton and Tim Massad at noon …

Friday … The Labor Department releases jobs data for November at 8:30 a.m. …

Another FDIC probe — Add the House Oversight Committee to the list of entities investigating workplace misconduct at the FDIC. The panel will receive a briefing on the matter this week after a pair of GOP committee members sent a letter to embattled FDIC Chair Martin Gruenberg on Nov. 20 requesting documents about allegations of a toxic culture at the agency. The House Financial Services Committee and Sen. Joni Ernst (R-Iowa) have also both requested documents from the banking regulator, which is conducting its own outside probe. — Jasper Goodman

Read the latest internal twists within the agency from WSJ’s Rebecca Ballhaus, who broke the initial news.

Investment drama continues — House Foreign Affairs Chair Michael McCaul said Friday that GOP lawmakers are aiming to reach a compromise on China investment restrictions early next year, our Jasper Goodman reports. McCaul said Friday that he met with House Financial Services Chair Patrick McHenry, who pushed to leave it out of the annual defense spending bill, and Speaker Mike Johnson and that they committed to work things out.

House votes to veto CFPB rule — The lower chamber voted 221-202 on Friday to nullify a Consumer Financial Protection Bureau rule requiring lenders to report demographic data on small business loan recipients, our Katy O’Donnell reports. Six House Democrats joined with Republicans to pass the rollback, which passed the Senate in October. The White House has threatened to veto the Congressional Review Act resolution that would block the regulation.

A bit more on rate cuts — The majority of economists polled by the National Association for Business Economics don’t expect the first rate cuts until at least the second half of next year, according to a new survey out this morning. Twenty-nine percent estimate the first cut will come in the third quarter, while 26 percent expect cuts won’t start til Q4 or later. That’s compared to 13 percent who see cuts in Q1, and 32 percent who expect them starting in Q2.

Sliced differently, most of the respondents expect cuts somewhere in the middle of the year, though they now expect cuts to start later than they did last month, and also foresee less of a drop in borrowing costs; the median projection was for 63 basis points in cuts, down from 100 in October.

Well, oil be darned — U.S. energy companies are cranking out a record 13.2 million barrels a day, more than Russia or Saudi Arabia, helping to drive down fuel prices but also threatening to undercut efforts to reduce greenhouse gas emissions, NYT reports.

NAR War — Lawyers for the Justice Department and the National Association of Realtors faced off on Friday in federal court over the Biden administration’s probe into the way homebuyers’ agents are compensated, a system that critics say inflates the cost of housing and amounts to a monopoly, our Katy O’Donnell reports.

Bold move, Cotton — Former Wells Fargo CEO Tim Sloan is suing the bank over $34 million in withheld pay in connection with a rash of consumer abuses uncovered at the firm, Reuters reported. Sloan, previously COO, became CEO in 2016 when his predecessor resigned in the wake of revelations that Wells employees had opened millions of unauthorized customer accounts. He stepped down in 2019.