Banking on a Fed Rate Cut Today, Investors Look for Hints of What’s Next
In September, Fed Chair Jerome Powell said that nine of the Fed’s 19 policymakers favored no more than one additional rate cut this year.
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No one will be surprised if (when?) the Federal Reserve announces an interest-rate cut today. Traders put the odds of a 0.25% reduction at 99.9%, according to CME Group’s FedWatch tool. It’s the most straightforward call the central bank will make all year.
The next one won’t be so easy, so all eyes will be on any hint to the Fed’s plans for December, when the monetary policy committee holds its next meeting.
A Fed Divided
These are challenging times for monetary policy wonks. The government shutdown, now entering its fifth week, means that the Federal Reserve’s Open Market Committee doesn’t have the data it usually relies on to make its decision. Members are also battling still-high inflation while contending with weakness in the labor market.
The market may be expecting a Christmas rate cut, but that doesn’t mean that the Fed will acquiesce:
- In September, Fed Chair Jerome Powell said at a press conference that nine of the Fed’s 19 policymakers favored no more than one additional rate cut this year.
- “They are at a moment in the policy cycle where there’s genuine disagreement between people who are thinking we will probably cut rates but I’m not ready to cut again just yet, and people who think even though there’s risks, it’s time to do more now,” the Fed’s former director of monetary affairs, Bill English, told CNBC. “There’s dissent between people who want to cut now, and people who want to wait and see a bit more.”
Tipping Point: What would sway the Fed one way or another? “Labor market weakness is the Fed’s primary concern right now,” says JoAnne Bianco, partner and senior investment strategist at BondBloxx. “Private sector data indicates job losses in recent months, plus Chairman Powell has acknowledged further downside risks to employment.”
And of course, inflation matters. While inflation is right around 3%, still higher than 2% the Fed is comfortable with, Bianco points out that it doesn’t appear to be accelerating. Traders currently set the odds of an additional quarter-point rate cut in December at 90.8%, per Fedwatch. But for now, we’ll have to wait and see.
