Claudia Sahm, former Federal Reserve economist and chief economist at New Century Advisors, said in an interview last Friday, "We've had two more months of good inflation data since the last Fed meeting, which is what the Fed has been asking for."

However, the question now is how much the Fed should act. Financial markets, a compass for the central bank's direction, haven't been helpful in this regard. According to the CME FedWatch tool, futures markets focused on a 25 basis point rate cut for most of last week, but by Friday, traders shifted to an almost equal likelihood of cutting by 25 or 50 basis points.

Sahm is among those who believe the Fed should take a bigger step. "The inflation data alone is enough to get us a 25 basis point cut next week, and a whole series of rate cuts after that," she said. She argues that the federal funds rate has been above 5% and has been sustained for over a year to combat inflation. "The fight has been won, they need to start cutting rates," she said.

This means cutting by 50 basis points from the start to prevent a potential recession in the labor market.

"The labor market has been softening since last July, so it's partly a recalibration. We've gotten more information. Fed officials need to make that 50 basis point cut and be ready to act further," she said.