A labor market rebound announced Friday is likely to keep the Federal Reserve on track to cut interest rates by another quarter percentage point later this month, absent any upside surprises to inflation.
“For the Fed, this doesn’t change the narrative,” Robert Sockin, Citigroup’s senior chief economist, told Yahoo Finance.
The new jobs numbers are “right in the spot of what they were looking for and they are comfortable with to continue easing policy” at the last meeting of the year, on Dec. 17-18.
Data from the Bureau of Labor Statistics released Friday showed 227,000 new jobs were created in November, just above the 220,000 expected by economists. The unemployment rate increased to 4.2% from the 4.1% seen in October.
Hurricanes and a strike by Boeing (BA) workers weighed heavily on the October report, which was revised to show there were 36,000 jobs created last month.
Traders boosted the odds of a rate cut at the Fed’s final meeting of 2024 to 91% following the data release.
But Fed watchers agreed that the robust jobs picture and recent stickiness in inflation reinforce a mounting conviction that the pace of rate cuts in 2025 will be less aggressive than once expected.
“It’s quite likely that they’re going to cut in December at the next meeting but then shift to a cadence of every other meeting in 2025 because they want to tread a little carefully here,” Annex Wealth Management chief economist Brian Jacobsen told Yahoo Finance.
Steve Sosnick, Interactive brokers chief strategist, told Yahoo Finance that even Fed Chair Jerome Powell may have been telling investors to “curb your enthusiasm about 2025” when he spoke at the New York Times’ DealBook summit on Wednesday.
Powell, at that event, said because the economy is stronger than the Fed thought earlier in the fall, “we can afford to be a little more cautious.”
Cleveland Fed president Beth Hammack said in her first remarks on monetary policy since taking over her position in August that she is looking at a rate cut at the next policy meeting followed by fewer rate cuts next year.
“Financial markets appear to be pricing in about one reduction in the fed funds target range between now and the end of January and only a few cumulative reductions by the end of 2025,” Hammack said in a speech in Cleveland, Ohio.
“This path is consistent with my current expectation.”
Hammack said that she believes the Fed may not be “too far” from a neutral setting now – referring to the level of the Fed’s benchmark interest rate that aims to neither boost nor slow economic growth.
She said she believes resilient growth, a healthy job market, and still-elevated inflation call for maintaining a “modestly restrictive stance for monetary policy for some time” to get inflation back down to the Fed’s 2% goal.
“With the possibility that policy may not be far from neutral, I believe we are at or near the point where it makes sense to slow the pace of rate reductions,” she said.
That calls for a slower pace of rate cuts relative to her forecast in September, she added.
Other Fed officials are also urging caution. Fed governor Michelle Bowman, who dissented against the Fed’s first rate cut in September, said Friday at an appearance in Missouri that she still has concerns about inflation.
Progress on that front “seems to have stalled” and lowering rates too quickly could “reignite inflationary pressures.”
Thus “I would prefer we proceed cautiously and gradually in lowering the policy rate,” without saying what she hopes the Fed will do at its December meeting.
Fed Governor Chris Waller, however, made it clear in comments this week that he is leaning toward another rate cut in December, noting that that the labor market appears to finally be in balance and the Fed should “aim to keep it that way.”
But he said if the next inflation data continue to show a slowdown in moderation then he could lean toward holding rates steady.
Chicago Fed president Austan Goolsbee while speaking Friday wouldn’t predict what the Fed would do at its policy meeting later this month, saying that “everything is always on the table.”
He did note that the Fed is in a “moment of transition” and “we’re going to have a series of meetings that are close calls between cutting and not cutting.”
Goolsbee reiterated, however, a prior prediction that “over the next year, if conditions evolve the way they have been and the way that I expect them to, rates are going to be a fair bit lower than where they are today.”
The next important data point is the Consumer Price Index due out next Wednesday, followed by producer prices on Thursday. Both will be pivotal for the Fed’s decision.
Federal Reserve chair Jerome Powell speaks at the DealBook Summit on Wednesday. (AP Photo/Seth Wenig) ·ASSOCIATED PRESS
Economists expect “core” CPI, which excludes volatile food and energy prices the Fed cannot control, to hold steady in November at 3.3% from October.
The data from those reports can also be used to make some estimates about the Fed’s preferred inflation measure — the “core” Personal Consumption Expenditures (PCE) index — to see if a recent trend of stickiness is set to continue when PCE is officially released on Dec. 20.
That core PCE measure, which strips out food and energy prices — rose 2.8% in October, rising above the 2.7% seen in September. The three-month annualized rate also jumped up to 2.8%.
Minutes of the Fed’s November policy meeting suggested that some officials could support a pause if inflation remains elevated.
Sosnick of Interactive Brokers noted that Friday’s jobs report showed that wage growth, an important measure for gauging inflation pressures, rose 0.4% in November.
That was in line with October’s increase and higher than the 0.3% rise economists had expected.
“If the wages are going up faster than the Fed’s target, that doesn’t help them meet their stable price mandate,” he said.
RSM chief economist Joe Brusuelas said, “Today’s [jobs] report does support a 25 basis point cut at the Dec. 18 meeting, but I don’t think we’re going to see any more action until March of next year at the earliest.”
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