Hopes Fade For Another Extra-Large Rate Cut At Federal Reserve's Next Meeting
After the Federal Reserve lowered interest rates for the first time since 2020 at its last meeting with a 50-point cut, its follow-up is looking likelier to be more muted.
Economic activity has remained resilient despite ongoing fears over a possible recession, with 98.9% of Fed watchers predicting the Federal Open Market Committee will cut the benchmark interest rate by 25 basis points on Nov. 7, from the current 4.75%-5% range to 4.50%-4.75%, according to CME Group’s FedWatch tool.
That would follow the 50-basis-point cut the Fed enacted in September, which prompted a wave of optimism in the embattled commercial real estate sector. Some, including J.P. Morgan, predicted at the time that there would be another 50-point cut in November.
Commercial real estate owners and banks are closely watching the Fed's recent interest rate decisions as they wrestle with $1.5T of upcoming loan maturities weighing on the system.
While the prospect of a quarter-point cut is now largely priced into the market, experts say hotter-than-expected core inflation data or payroll growth could deter the Fed from making a move at all, CNBC reported. Those two key economic gauges are set to be released this week.
The Bureau of Economic Analysis is scheduled to release its personal consumption expenditures index, the Fed’s preferred inflation gauge, on Thursday. Watchers are expecting it to show inflation at 2.6% in September, down from 2.7% in August and closer to the Fed’s 2% target, according to CNBC.
The reading, which excludes food and energy prices, could foreshadow how much the Fed will cut rates in November, especially since the consumer price index rose 2.4% in September, slightly higher than economists anticipated.
Economists also expect that job growth, to be announced by the Department of Labor this week, will decelerate to 125,000 new jobs in October, down from 254,000 added in September, with the unemployment rate remaining around 4.1%. The strength of the job market also weighs on the Fed's decisions.
Christopher Waller, a Federal Reserve governor, said this month that the strike at Boeing, along with two recent hurricanes, could adversely affect job growth numbers coming out this week.
“It won’t be easy to interpret the October jobs report to be released just before the next FOMC meeting,” Waller said during an Oct. 14 speech. “I expect these factors may reduce employment growth by more than 100,000 this month, and there may be a small effect on the unemployment rate.”
Wells Fargo Chief Economist Jay Bryson said Monday that both reports will likely mean the Fed will err on the side of caution with a 25-basis-point rate cut versus another 50-point chop.
“The recent string of stronger-than-expected data and policymakers' comments give no reason to expect another 50 bps cut at the Committee's upcoming meeting," Bryson wrote in his report, Seeking Alpha reported.
