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Fed Seen on Track for 25-Basis-Point Rate Cuts Next Week and in December

Reuters11-02

Nov 1 (Reuters) - Federal Reserve policymakers look all but certain to reduce short-term borrowing costs by a modest quarter of a percentage point at their policy meeting next week, their confidence that the labor market is cooling but not crashing likely intact despite new data showing U.S. employers added fewer workers in October than in any month since December 2020.

The increase of 12,000 nonfarm payroll jobs last month was far short of the 113,000 economists had anticipated. But analysts pinned the bulk of the weak showing on the tens of thousands of workers kept temporarily off the job by a Boeing strike and the impact of two large hurricanes in the U.S. Southeast, as well as a poor response rate that clouds the true state of U.S. employment.

Some 512,000 people reported they were unable to work due to bad weather, the most for the month of October since the Bureau of Labor Statistics began tracking that figure in 1976.

The unemployment rate remained at 4.1%, low by historical standards.

But the report had weak spots. It showed that it may be getting harder to find a job once a person is out of work, with the average length of unemployment rising to 22.9 weeks, from 20.6 weeks in September. The labor force also shrank by 220,000 people, and the three-month average monthly job gain after downward revisions to prior months' reports is now about 104,000, well below what most economists estimate is needed to keep up with immigration-fueled population growth.

Line graph showing monthly and three month average job gains.Line graph showing monthly and three month average job gains.

"Bad weather and large labor strikes muddy the water and make labor market weakness appear worse than it truly is," Scott Anderson, chief U.S. economist at BMO Capital Markets, wrote in a note. "Still, the Fed's job is to see through the noise, and they will probably take some signal from the continuing labor market softening as a sign that they can continue the process of monetary normalization without much fear of igniting another bout of inflation."

Data earlier this week showed inflation by the Fed's targeted measure running at 2.1% in September, just a notch above its 2% goal, though sticky underlying price pressures are expected to keep U.S. central bankers wary of declaring victory too early.

Notably, interest rate futures prices on Friday reflected no chance the Fed would deliver another half-percentage-point rate cut, as it did in September when it began easing policy to head off deterioration in labor markets.

Traders of futures that settle to the Fed's policy rate instead moved to price in about a 99% chance that the central bank on Nov. 7 would cut its policy rate by a quarter of a percentage point to the 4.50%-4.75% range, compared with 92% before the release of the jobs data. They see about an 83% chance that the policy rate will be in the 4.25%-4.50% range by the end of this year, compared with 69% earlier.

Fed policymakers will begin their next two-day policy meeting a day after the U.S. presidential election on Tuesday, and though the result is not expected to directly factor into their decision two days later, many analysts see election uncertainty as an added temporary weight on the labor market in October that could be reversed in coming months.

Financial markets currently see the Fed lowering its policy rate to the 3.50%-3.75% range by September of next year.

Line graph showing various measures of inflation and the Federal Reserve's policy rate of interest.Line graph showing various measures of inflation and the Federal Reserve's policy rate of interest.

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  • According to this article, the Boeing strike and hurricanes cause weaker than expected job growth, which may result in the FED likely to cut interest rate. @TigerGPT , does that mean if there are more & more strikes and more & more hurricanes in the near future, will lead the FED to cut interest rate to zero or negative number? [Thinking]  
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    • TigerGPT

      Based on the articles I found, the weak job growth in October, influenced by the Boeing strike and hurricanes, has increased the likelihood of the Federal Reserve (FED) cutting interest rates. The FED is expected to reduce short-term borrowing costs by a modest quarter of a percentage point at their policy meeting in the following weeks, with another potential rate cut in December. The weak job growth is seen as evidence of a cooling labor market, and the FED aims to sustain economic growth by adjusting the rates accordingly.

      However, it's important to note that whether the FED would cut interest rates to zero or negative levels in the future due to increased strikes and hurricanes cannot be determined solely based on the current situation. The FED's decision to adjust interest rates depends on various factors, including the overall economic conditions, inflation outlook, and financial stability. While strikes and natural disasters can impact job growth and the economy, they are not the sole determinants of interest rate decisions.

      It is advisable to closely monitor economic indicators, FED announcements, and expert analysis for a comprehensive understanding of future interest rate movements. Please note that this information is for reference purposes only and should not be considered investment advice.

      Here is the link to one of the articles discussing the FED's likelihood of cutting interest rates based on the weaker job growth.

      Here is another article that provides insights into the impact of the weak job data on the FED's decision-making process.

      Here is an article mentioning the Fed rate-cut odds and how the S&P 500 reacted to the October jobs report.

      Here is an article discussing the impact of the Boeing strike and hurricanes on US industrial production.

      Here is an article about the expected slowing growth in the October jobs report due to the aftermath of hurricanes and the Boeing strike.

      11-02
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