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FED: Labor Trends And Calendar Make 25bp Cuts In Nov And Dec Base Case (1/2)

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The final major data input ahead of the Fed's November meeting settles the question of whether the Committee will cut 25bp or opt to "skip". With the October payrolls report in hand, the Committee will almost certainly cut 25bp on Nov 7, but the data also firmly puts the base case for December's decision in favor of another 25bp cut.

  • The Fed’s base case in September was for another 25bp in cuts in each of November and December, following on from the half-point cut to kick off the cycle – a sentiment reiterated by Chair Powell in late September when he said that the Dot Plot was a good guide to policy for the rest of 2024.
  • Intra-meeting Fed commentary signaled that participants were not concerned that they had erred in cutting 50bp (vs 25bp) in September in light of strong subsequently-released payrolls data, solid growth indicators, and upward GDI data revisions. Indeed September's payrolls data was largely interpreted by participants as a positive-on-balance development in terms of achieving a soft landing.
  • It did however take a 50bp cut out of the conversation, and had the discussion turn toward whether there would be one or two further cuts. Only 2 members in the September Dot Plot saw rates held through end-year; 7 saw 1 more 25bp cut and 10 saw at least another 50bp.
  • Immediately after the September payrolls, we would have thought the Committee balance would have tilted slightly toward just 1 more cut this year, though this would remain data-dependent going into the November payrolls report. Three prominent examples of shifting views post-Sept payrolls: SF Fed Pres Mary Daly, who said that either one or two more cuts this year was her base case, arguably hawkish for such a dove; Atlanta's Bostic went from musing on another 50bp cut in November to entertaining a "skip" at the same meeting; Gov Waller didn't go as far as to entertain a skip but tempered his enthusiasm on outsized cuts, saying they should proceed with "more caution".
  • In light of the above context, the "noisy" but ultimately soft nature of the October report, combined with the revisions to the prior months, largely assure a 25bp cut will be supported across the broad Committee on Nov 7. Consider a counterfactual: if we'd gotten a strong October report with limited revisions to prior (or upward revisions), particularly considering the negative impact it would have sent the Committee a signal that perhaps the balance of risks for employment was not so heavily to the downside as they'd thought in September, limiting the need to rush on cuts and putting market odds for a cut vs skip next week at closer to 50/50.
  • Now, the story is at least slightly more coherent: economic growth and demand remain robust, payrolls (and particularly private payrolls) continue to trend lower amid limited job churn, and the unemployment rate looks stuck above 4% (October's was very close to rounding up to 4.2%) even if it's not going to rise as high as the 4.4% Q4 2024 median FOMC projection from September.
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The final major data input ahead of the Fed's November meeting settles the question of whether the Committee will cut 25bp or opt to "skip". With the October payrolls report in hand, the Committee will almost certainly cut 25bp on Nov 7, but the data also firmly puts the base case for December's decision in favor of another 25bp cut.

  • The Fed’s base case in September was for another 25bp in cuts in each of November and December, following on from the half-point cut to kick off the cycle – a sentiment reiterated by Chair Powell in late September when he said that the Dot Plot was a good guide to policy for the rest of 2024.
  • Intra-meeting Fed commentary signaled that participants were not concerned that they had erred in cutting 50bp (vs 25bp) in September in light of strong subsequently-released payrolls data, solid growth indicators, and upward GDI data revisions. Indeed September's payrolls data was largely interpreted by participants as a positive-on-balance development in terms of achieving a soft landing.
  • It did however take a 50bp cut out of the conversation, and had the discussion turn toward whether there would be one or two further cuts. Only 2 members in the September Dot Plot saw rates held through end-year; 7 saw 1 more 25bp cut and 10 saw at least another 50bp.
  • Immediately after the September payrolls, we would have thought the Committee balance would have tilted slightly toward just 1 more cut this year, though this would remain data-dependent going into the November payrolls report. Three prominent examples of shifting views post-Sept payrolls: SF Fed Pres Mary Daly, who said that either one or two more cuts this year was her base case, arguably hawkish for such a dove; Atlanta's Bostic went from musing on another 50bp cut in November to entertaining a "skip" at the same meeting; Gov Waller didn't go as far as to entertain a skip but tempered his enthusiasm on outsized cuts, saying they should proceed with "more caution".
  • In light of the above context, the "noisy" but ultimately soft nature of the October report, combined with the revisions to the prior months, largely assure a 25bp cut will be supported across the broad Committee on Nov 7. Consider a counterfactual: if we'd gotten a strong October report with limited revisions to prior (or upward revisions), particularly considering the negative impact it would have sent the Committee a signal that perhaps the balance of risks for employment was not so heavily to the downside as they'd thought in September, limiting the need to rush on cuts and putting market odds for a cut vs skip next week at closer to 50/50.
  • Now, the story is at least slightly more coherent: economic growth and demand remain robust, payrolls (and particularly private payrolls) continue to trend lower amid limited job churn, and the unemployment rate looks stuck above 4% (October's was very close to rounding up to 4.2%) even if it's not going to rise as high as the 4.4% Q4 2024 median FOMC projection from September.