MNI US Macro Weekly: Case For Fed Pause Continues To Build

MNI (NEW YORK) - Executive Summary

• In comparison with largely stronger-than-expected activity readings seen in the past two months, data in the week of Nov 18-22 was more mixed.
• That included jobless claims, regional Fed manufacturing surveys, and housing activity, none of which provided conclusive new insights into the economic trajectory except to confirm that a pullback in growth does not look imminent. In the most positive development, November services PMI came in at the highest since Mar 2022, but even that was caveated by a fourth month of employment declining.
• A more generous reading of the week’s data though would be that current activity is steady at worst, and prospects for growth in the next few quarters are looking a little brighter. And it provides more evidence that the downside risks to growth - which seemed apparent even a couple of months ago - have subsided.
• FOMC commentary continued the recent theme of greater caution on policy easing, as another Fed Governor (Cook) invoked the term “pause” to describe a potential course of future action (after Gov Kugler did so the previous week).
• Her colleague Gov Bowman – one of the most hawkish FOMC members – repeated concern over inflation.
• Between that rhetoric, the aggregation of solid data over the past couple of months, and speculation over reflationary policy under the incoming Trump administration - cumulative Fed cuts have continued to diminish in probability, with futures markets now on a coin flip for a December cut (13bp), the first full cut only priced two meetings later in March (32bp), and barely two quarter-point cuts through June (49bp).
• In a Thanksgiving holiday-abbreviated Nov 25-29 week, the highlights of a compressed data schedule mainly come simultaneously on Wednesday morning when we get the 2nd reading of Q3 GDP, October PCE, weekly jobless claims, and durable goods and trade balance data.
• The minutes to the November FOMC meeting (released Tuesday at 1400ET) will be viewed in light of the hawkish tilt in Fed officials’ commentary in the 3 weeks since they decided to cut rates by 25bp. Most focus in the minutes will be on any discussion about the Committee’s thinking about a December cut, including whether (or not) the conveyed tone implies a high bar to holding rates. It’s possible that the discussion had already started to turn toward when and to what degree to slow the pace of cuts.

PLEASE SEE HERE FOR THE FULL REPORT:

US week in macro_241122.pdf