Breaking News: September Jobs Report and GDP Revisions Suggest Fed's Rate Cut Was Unnecessary, Bank of America Says
In a surprising turn of events, Bank of America strategists have declared that the Federal Reserve's 50 basis point rate cut in September may have been unwarranted. The upbeat September jobs report and significant upward revisions to GDP and GDI have led to a shift in discussions, with some questioning if a rate cut is needed at all.
Despite the speculation surrounding a potential November rate cut, BofA believes that the Fed is unlikely to be deterred from cutting by 25bp, especially with strong labor data supporting their decision. Governor Waller's recent comments have indicated that the Fed will continue cutting rates as long as broad-based disinflation remains on track.
Looking ahead to Thursday's data release, attention is turning back to the CPI. BofA expects a core CPI reading of 0.3% month-on-month, above consensus, but predicts a milder 0.2% core PCE. This data should be soft enough for the Fed to proceed with a 25bp cut in November, as Chair Powell has gained flexibility by de-emphasizing housing inflation stickiness.
Economist Mohamed El-Erian's term "data point dependence" has resonated with the market's sensitivity to macroeconomic data releases. BofA strategists agree that while it's natural for the Fed to be data-dependent, not all data surprises hold equal weight. However, the Fed's commitment to not falling behind the curve has led markets to react to data surprises as significant news.
In conclusion, the analysis indicates that the Fed's decision-making process is heavily influenced by macroeconomic data releases. Investors should pay close attention to upcoming data releases and Fed announcements, as they can have a significant impact on the financial markets and investment strategies.