Recent data surprises have fueled speculation of a Fed "pause", but a 25bp cut remains the base case for November.
Executive Summary
- An upside surprise in September CPI this week contributed to speculation that the Fed will opt not to cut rates at its next meeting in November, a notion furthered by Atlanta Fed President and 2024 FOMC voter Bostic, who said after the data he would be “totally comfortable” with pausing next month.
- With economic activity seemingly in a solid place (Atlanta Fed GDPNow pointing to 3+% growth in Q3), and no downside surprise to inflation or jobs in September, the FOMC is probably set for another “close call” on November 7 which may hinge on the October payrolls data (Nov 1).
- For the moment, the base case is still for a follow-up 25bp cut. Market pricing for that outcome – which was pared sharply after last Friday’s nonfarm payrolls report in favor of a ~25% chance of a pause – actually has solidified slightly since the CPI release, even if a 50bp move appears all but ruled out at this stage.
- Indeed, weekly jobless claims released alongside CPI didn’t further the “skipping” case, with a surprise jump, but at least some of that was accounted for by the impact of Hurricane Helene. Meanwhile, data showed consumer credit growth remains subdued, while producer prices offered a mixed read for the Fed’s preferred PCE inflation gauge.
- Next week brings a lighter calendar. The early highlight will be Fed Governor Waller's speech Monday - any commentary about potential for a November "skip" will be closely eyed. We also get a key update on consumer activity on Thursday with the latest retail sales report for September.
PLEASE FIND THE FULL REPORT HERE: US week in macro_241011.pdf
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