The Federal Reserve’s decision to hold rates steady, didn't surprise investors. But their Summary of Economic Projections, which signaled three rate cuts next year, did catch a few people off guard. Nick Timiraos, The Wall Street Journal Chief Economics Correspondent joins Yahoo Finance Live to weigh in on the potential timeline for the first rate cut—and what could signal it.

Timiraos explains why Fed Chair Jerome Powell's tone on rate cuts has shifted. Timiraos makes clear that any rate cuts would be dependent on inflation continuing to decline. "It does seem like they [the FOMC] could be moving ahead the discussions around when to cut rates after [January] if inflation continues to come down," Timiraos.

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Video Transcript

- If we were to see next year, because the expectation is that the Fed is going to continue in its inflation combating, but at the end of the day, how close will we actually get to their target? And will a two-handle satisfy?

NICK TIMIRAOS: Well, I mean, they're at a two-handle now. Again, if you use the six month rate. And I think that explains why we saw a pivot yesterday. If you just go back two weeks ago, Jay Powell spoke in Atlanta, and he said it was premature to talk about lower rates to speculate around when policy might be eased.

Yesterday, he was asked about it and he said, "We did have a discussion around that." It sounded like a preliminary discussion but it didn't sound like somebody who was saying it was too soon to think about when they would ease. So it doesn't mean that they're going to cut interest rates in January but it does seem like they could be moving ahead the discussions around when to cut rates after that if inflation continues to come down.

And that tracks almost exactly with what Fed Governor, Chris Waller, said a couple of weeks ago. I asked him a question about whether the Fed would cut rates even if the economy was doing OK if core inflation was back to 2.5%. And he said yeah, if we see three, four, five months of inflation behaving like this, then a Taylor rule would tell you, a standard monetary policy rule would tell you that you don't need to be at 5 and 3/8 on the Fed funds rate.