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.

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