Does Fed's Concern for 'Higher Inflation' Mean a December Rate Cut Is Off?
Here’s the data that will determine if the Fed delivers a December rate cut or not.
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We’ve just received the latest Federal Reserve meeting minutes, the ones behind its October rate cut and Fed Chair Powell’s “far from certain” comment about a December rate cut.
What did we learn?
What This Suggests
What this suggests to us is that, back in October, the collective thinking was that, subject to incoming employment data that could show a collapse in job creation, the Fed was, for the most part, inclined to leave the fed funds rate alone following its December policy meeting.
Since that meeting concluded on October 29, we’ve seen several pieces of job data:
- The October ISM Manufacturing and Services PMI showed job creation continued to contract
- ADP’s October Employment Change Report found 42,000 jobs were added during the month, a rebound from the 29,000 that were lost in September
- But we also saw October layoffs surge according to the October Challenger Job Cuts report, which found that U.S. employers announced 153,074 job cuts, up from 54,100 in September and 86,000 in August
While we won’t get the October or November Employment figures until December 16, per a BLS announcement earlier on Wednesday, we will get the November figures for those data sets mentioned above. Before that data is published in early December, on November 26, we will get the next iteration of the Fed’s Beige Book as well as other regional Fed data.
Based on more recent comments by several Fed officials, as the forthcoming figures for those data sets and any other catch-up ones released by the government are published, should we see a pronounced softening in the labor data, we could see market expectations for a December rate cut rebound.
This leads us to think that while the October FOMC minutes aren’t bringing anything dramatically new to the "will they or won’t they deliver a December rate cut" table.
Instead, it’s the incoming data that will tell us that, and if it leans toward a December rate cut happening, that would be a big reversal for those expectations, which have fallen considerably of late. As of Wednesday afternoon, that probability per the CME FedWatch Tool stands as just over 33%, down sharply from almost 94% a month ago.
