The Federal Reserve’s policy-making arm, the Federal Open Market Committee (FOMC), will likely shift from the aggressive interest rate cut during its September meeting to a moderate cut in its November meeting, to be held on Nov. 6 and Nov. 7. However, the path to lower interest rates remains to be determined, as mixed data complicate the job of the nation’s central bank.
This probability has risen from 67.9 percent a month ago to 95.1 percent a week ago. At the same time, the likelihood of another sizable 50 basis-point cut, which occurred in September, dropped from 4.9 percent a week ago to 1.1 percent on Nov. 1.
The forecasts from market experts align with the FedWatch’s forecast of a moderate 25 basis-point cut.
“The Federal Reserve is likely to err on the side of caution and reduce interest rates by another 25 basis points in November, given the difficulties of accurately interpreting incoming labor market data,” Noah Yosif, chief economist at the American Staffing Association, told The Epoch Times in an email.
Matt Willer, a private investments asset expert, agrees.
“Twenty-five basis points and this is really where they want to buy as much time to observe data,” Willer wrote in an email to The Epoch Times. “So, I see a measured approach from here on out, erring on caution and patience.”
Mixed U.S. economic data are the primary reason for a measured approach to interest rate cuts. These data complicate matters for the central bank in this meeting and the December meeting as the Fed tries to define the path to lower interest rates.
On the one side of the data list is a string of inflation numbers, which suggest that the old villain of the U.S. economy, followed closely by the Fed, remains elevated.
For instance, the core personal consumption expenditures price index, the Fed’s favored measure of inflation, rose by 0.3 percent from September. It’s the highest gain in five months, following an upwardly revised 0.2 percent increase in August.
The lowest job growth since December 2020—when the economy lost 243,000 jobs—it reflects the effects of the Boeing strike and the disruptive forces of hurricanes. In addition, the October reading is also much lower than the average monthly gain of 194,000 over the prior 12 months.
Weak job growth is usually accompanied by higher unemployment and lower wage hikes. But that was not the case this time, with October unemployment remaining at 4.1 percent, unchanged from the three-month low in the prior month, and average hourly wages edging higher, up by 0.4 percent, compared with 0.3 percent in August.
The persistence of record-low unemployment, rising wages, and solid consumer spending could set the U.S. economy into a cost-push–demand-pull inflation spiral. This scenario supports the narrative of higher inflation for longer, making it difficult for the Federal Reserve to proceed with further interest rate cuts.
Maxime Darmet Cucchiarini, Allianz senior economist for the UK, United States, and France, sees labor market tightness and inflationary pressures continuing because of the decline in immigration flows at the U.S.–Mexico border since June.
“This could reignite inflationary pressures by approximately [plus] 0.2 [percentage points] in 2025, especially if financial conditions remain loose,” he told The Epoch Times via email.
As a result of these pressures, Cucchiarini sees the nation’s central bank shifting from a very hawkish 50 basis-point cut in September to a less hawkish cut of 25 basis point cuts at each meeting through mid-2025, bringing the fed funds rate to 3.25 percent to 3.5 percent.
“This controlled approach reflects persistent core inflation, particularly in rentals and services, which may prevent the Fed from accelerating its easing,” he said.
