Fed Watch – 11/1/2024

The below transcript is a literal translation of the podcast audio that has been machine generated by Notta.

Hi everyone, my name is Taylor St. Germain with ITR Economics and welcome to the November 1st edition of FedWatch.

This is an exciting edition of FedWatch because we have the next Federal Reserve meeting scheduled next week, that’s November 6th and 7th. And if you’re paying attention to market expectations, the market is anticipating a likely 25 basis point cut in the Fed funds rate next week during that meeting. That would adjust the Fed funds rate target range to 4.5% to 4.75%.

Of course, this is following the 50 basis point cut in September, which really marked the beginning of this Fed easing cycle. Now of course, the Fed is going to pay close attention to the economic indicators. And while the 25 basis point is widely expected, again, the Federal Reserve is going to make their decision based on the economic data. And let’s talk about some of that recent economic data.

Now, the overall PCE, Personal Consumption Expenditures, you know, that increased to 2.1% year over year. And that is, I should say that increased by 2.1% in terms of the annual growth rate. So we are 2.1% above the year ago level. That’s actually the lowest reading since early 2021. So that would suggest that, again, we’re continuing to see some of these inflationary pressures easing. You know, the core PCE price index, that did rise by about 0.3% month over month recently, which gets us to 2.7% year over year. That was slightly exceeding expectations, but again, the overall PCE is only up 2.1% year over year. And of course that’s awfully close to the Fed’s 2% target, as it relates to their progress towards price stability. So overall, the inflation picture is one of general easing, which I think will provide some comfort to the Fed.

The other data point I wanted to call out is the jobs report. That came out today. And when we looked at the jobs report, we saw today that employers added about 12,000 jobs. Now that is very different from the over 200,000 jobs we saw the month prior, but it’s important to unpack that much lower jobs number for October. So 12,000 jobs added in October, that is the lowest monthly total since December of 2020. So you have to go all the way back to December of 2020 to see job gains as slow as what we saw in October. However, the unemployment rate is still holding steady at 4.1%. The other thing to consider is that October number that’s being impacted by hurricanes, that’s being impacted by strikes like what we see at Boeing. So there’s some nuance in that much lower number that we saw for October.

But really what this means for the overall picture, again, we have general easing inflation, the labor market has cooled despite the unemployment rate staying steady, the number of jobs we added again in October, it was a pretty significant mark slowdown from where we were in prior months when we look at the run rate. And we still have steady economic growth when it comes to GDP, that third quarter GDP number coming in at the annualized rate of 2.8%.

So again, overall, the market expectations are continuing to lean towards that 25 basis point cut as we look at the meeting next week. You know, here at ITR, we wanna just remind you of the long term and to really zoom out, whether or not we see rates held steady next week, whether or not we see a 25 basis point decline, I think we’d all be more encouraged by seeing lower rates. But our expectation is that as we move into 2025, we continue to have a strong economy with inflation that remains low enough to see rates continue to come down as we progress into next year. Now is still a great time to be making moves to be investing in our businesses. Yes, slightly lower rates next year, and that’ll continue to spur some of this spending and economic activity.

But I certainly hope folks are not overreacting to this 25 basis point cut and whether or not we get that. There’s still good news on the horizon. When we look at 25, when we look at where overall interest rates are headed and where we look at where the economy is headed overall. So it’ll be fun to check in with you all next week as we have our next edition of FedWatch coming up on next Friday to see if we get that 25 basis point cut or not. The data tends to support it, the markets think it’s coming, and we’ll sit tight and see if the Fed does pull that trigger. Thanks so much for joining me on this episode of FedWatch. Please remember to like and subscribe to the podcast, wherever you listen to your podcasts, and I’ll look forward to seeing you all in the next one.