Markets Project Smaller 2024 Interest Rate Cuts On Better Jobs News

With recent, stronger jobs data, markets expect the remaining anticipated interest rate cuts of 2024 to be 0.25% moves. That’s down from expectations that both November and December Federal Open Market Committee meetings could see 0.5% cuts. Fixed income market expectations are tracked by the CME FedWatch Tool.

Recent Jobs Data Ahead of Expectations

There was concern that the U.S. unemployment situation could weaken further. However, the Employment Situation Report for September showed clear improvement. Unemployment fell slightly for the second consecutive month to 4.1% and nonfarm payrolls rose 254,000. That’s over 200,000 jobs added for the first time since May.

Now, the FOMC will see another jobs report on November 1 before its next meeting on November 6-7 and that data could change things. Inflation numbers will matter too. Nonetheless, for now, U.S. unemployment data is more positive than generally anticipated and inflation continues to trend lower.

This matters because if unemployment were to rise significantly, then the FOMC may be prompted to cut rates quite rapidly. That would be to try and reduce the risk of a recession. On the most recent data, a steep rise in unemployment is not happening.

Of course, inflation appears to be returning to the FOMC’s 2% annual target, so that creates some momentum for less restrictive monetary policy. However, if the jobs market continues to appear robust, then there’s perhaps a little less urgency for interest rate cuts.

Upcoming FOMC Meetings

The remaining scheduled FOMC interest rate decisions of 2024 are on November 7 and December 18. Currently, fixed income markets expect both to result in 0.25% interest rate cuts. That would leave short term interest rates at 4.25% to 4.5% by the end of 2024 or 0.5% lower than current levels. The risk of a slightly larger or smaller interest rate move is balanced, but currently further 0.5% cuts in 2024 are viewed as unlikely just as is the scenario of the FOMC choosing to hold rates steady at either meeting.

FOMC Policymaker Statements

In two recent speeches, policymakers have signaled confidence in monetary policy and advocated for a more gradual approach to interest rate cuts.

New York Fed President John Williams said that: “The current stance of monetary policy is really well positioned to both hopefully keep maintaining the strength that we have in the economy and the labour market, but also continuing to see that inflation comes back to 2 per cent,” in an interview with the Financial Times on October 7.

St Louis Fed President Alberto Musalem, said: “My baseline outlook is for continued economic expansion over the next several quarters, supported by a gradual easing of monetary policy and accommodative financial conditions.” At a speech in New York on October 7.

What To Expect

There is still more key economic data to come before the FOMC’s next scheduled meeting on November 6-7. Primarily, that’s the jobs report for October and inflation reports for September.

So far, the jobs markets appears to be performing better than expected since the FOMC last met, and inflation continues to trend lower. If that economic outlook continues, then it appears likely the FOMC will cut interest rates at its two remaining meetings of 2024, but only by 0.25% at each, rather than the previously estimated 0.5%.