Federal Reserve Rate Cut Odds Increase After Inflation Report - What It Means for Your Investments
As the latest government report shows a modest rise in inflation, traders are now betting on the Federal Reserve delivering another 50-basis-point rate cut in November. Interest rate futures indicate a 54% chance of a half-point cut, with a total decline of 75 basis points expected by year-end.
Citi strategists support this view, predicting a 50-basis-point cut in November pending upcoming data, especially the next monthly jobs report. While jobless claims are currently low, focus is shifting to the employment components of PMI data.
Fed Chair Jerome Powell sees the initial rate cut as a signal of the Fed's readiness to act decisively if the labor market weakens further. Citi suggests that if the unemployment rate stabilizes, the Fed may slow the pace of rate cuts to 25 basis points per meeting, but upcoming economic data could prompt a quicker pace.
Although stable jobless claims are encouraging, Citi points out a slowing hiring rate and softer private payroll growth as potential indicators of rising unemployment. With two more jobs reports before the November FOMC meeting, Fed officials will have more data to assess the labor market trend.
The PCE price index rose 0.1% in August, bringing the annual inflation rate to 2.2%. Core PCE, excluding food and energy, also rose 0.1% with a 2.7% year-over-year increase. Fed officials prioritize core PCE as an indicator of long-term inflation trends.
In summary, the increased odds of a rate cut could impact your investments. Keep an eye on upcoming economic data, especially the jobs reports, to stay informed about potential changes in the market and make informed investment decisions.