Breaking News: September Jobs Report Challenges Fed's Rate Cut Decision, BofA Strategists Say
In a surprising turn of events, the latest September jobs report and positive revisions to GDP and GDI have raised doubts about the necessity of the Federal Reserve's 50 basis point rate cut in September, according to Bank of America strategists. The discussions have shifted from debating the size of a potential November rate cut to questioning if a cut is needed at all. Some are even speculating about the possibility of the Fed skipping a November cut to offset the previous larger-than-expected cut.
Despite the uncertainty, BofA strategists believe that the Fed is likely to proceed with a 25bp cut in November, especially with strong labor market data. Governor Waller's recent comments support this notion, indicating that as long as disinflation remains on track, the Fed can continue cutting rates back to neutral.
While recent focus has been on the labor market, attention is now shifting back to inflation concerns ahead of Thursday's data release. BofA anticipates a core CPI reading of 0.3% month-on-month, above consensus, but expects the core PCE to be milder at 0.2%.
This data should provide enough support for the Fed to move forward with a 25bp cut in November, as the year-over-year rate is expected to decrease due to favorable base effects. Chair Powell's flexibility has also been enhanced by downplaying 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 significance.
The Fed's commitment to staying ahead of the curve has led to market reactions to data surprises as if they are all significant news. This trend is expected to continue, according to strategists.
In conclusion, the mixed signals from recent economic data releases have left investors and analysts questioning the Fed's next move. The upcoming November rate decision will be crucial in determining the central bank's stance on monetary policy going forward. It is essential for individuals to stay informed and monitor these developments closely to make informed decisions regarding their finances and investments.