Monday, December 23, 2024

Cut or pause? 2 critical reports will determine what Fed does in November.

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The coming week will seal what the Federal Reserve does in November.

Cut rates again or pause? Those appear to be the two options on the table for central bank policymakers at their next meeting on Nov. 6-7, and two reports this week on inflation and the labor market could swing the final calculus.

If inflation numbers released Thursday look firmer than expected and the jobs picture in a Labor Department report on Friday is hotter than expected, “I think they could debate pausing since they cut by 50 basis points before,” said Wil Stith, bond portfolio manager for Wilmington Trust.

Strong job gains “could convince the Fed to pause in November,” added Jeffrey Roach, chief economist for LPL Financial.

But other Fed watchers said it’s not likely the data due out Thursday and Friday will change the Fed’s path downward.

“The Fed is already on the glide slope of a 25 basis rate cut in November and is unlikely to alter that trajectory, no matter what the data say,” said Jamie Cox, managing partner for the Harris Financial Group.

Read more: What the Fed rate cut means for bank accounts, CDs, loans, and credit cards

Barring a major surprise in the jobs report, “there’s no reason to think the Fed won’t cut rates another quarter point on Nov. 7,” said Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management.

As of now, many traders agree with that assessment. Investors, as of last Friday, were pricing in a greater than 90% chance of a 25 basis point rate cut when Fed officials meet on Nov. 6-7.

What is a sure bet is that all Fed policymakers are going to be paying close attention to the reports due out this week.

First up is a new reading Thursday from the Fed’s preferred inflation gauge — the Personal Consumption Expenditures (PCE) index.

It is supposed to show that so-called core inflation, which excludes volatile food and energy prices, cooled a tenth of a percent to 2.6% during the month of September from 2.7% in August. The Fed’s goal is to get this measure all the way down to 2% over time.

A separate reading on inflation, known as the Consumer Price Index, was warmer than expected during the month of September. That offered new ammunition for those on the Fed arguing for a gradual pace of rate cuts following the jumbo reduction in September.

The second critical report this week will be a reading on the labor market due out Friday.

That report may not offer officials a clear assessment because it could be buffeted by two major hurricanes that temporarily caused people in the regions affected by the natural disasters to be out of work, as well as an ongoing labor strike at jet maker Boeing (BA).

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