As the Federal Open Market Committee (FOMC) prepares for its final meeting of the year, hopes for an interest rate cut in December are diminishing rapidly. Recent data from the CME FedWatch tool shows a mere 32% probability of a 25-basis-point reduction, a stark contrast to the 98.9% certainty a month ago. The prevailing sentiment suggests that the Federal Reserve will maintain the current base rate, which sits between 3.75% and 4%. This outlook is likely to disappoint the Biden administration, which has advocated for significant rate reductions in 2025, with President Trump criticizing “Too Late Powell” for contributing to a housing crisis.
Wall Street’s reaction to a potential hold on rates comes with mixed feelings, as recent FOMC notes revealed a divided committee regarding inflation, which currently stands at 3%, above the Fed’s 2% target. While some members expressed comfort with the current inflation levels, arguing they are “close” to target, others highlighted that inflation has remained elevated for an extended period without signs of a sustainable return to the desired goal.
This split among Fed members is evident, as some advocated for a December cut while others preferred to keep rates unchanged, emphasizing that “monetary policy was not on a preset course.” It is clear that the committee is grappling with contradictory mandates: controlling inflation while simultaneously addressing a deteriorating employment situation that could prompt another rate cut.
Chair Powell noted the stagnation in the labor market, describing it as a low-hire, low-fire economy, which is compounded by a recent data blackout due to a government shutdown. Looking ahead, the FOMC anticipates gradual deterioration in the job market, attributing the slowdown in job creation to reduced labor supply and demand, alongside structural factors tied to technological advancements such as AI.
Despite the gloomy outlook, there is optimism surrounding the jobs report that is anticipated today. Economists, including Goldman Sachs’ David Mericle, expect the employment rate to remain steady at 4.3% with a slight growth in private sector jobs. RSM chief economist Joe Brusuelas echoes this sentiment, predicting a 50,000 increase in employment roles along with upward revisions to previous months’ estimates.
Such positive expectations regarding job growth could lessen the likelihood of a rate cut in December, as economists evaluate the Fed’s dual mandates and the impacts of the labor market on its decision-making process. Overall, while uncertainties loom, analysts hold on to a cautious optimism about potential job growth that may influence the Fed’s policies moving forward.