Expectations for a 0.25% rate cut in November
Fed’s focus on ‘price stability vs. employment improvement’
Possibility of skipping a cut in December
US election results and treasury yields as variables
The Federal Open Market Committee (FOMC) meeting, scheduled for November 7—two days after the US presidential election—has market and expert consensus leaning towards a 0.25 percentage point rate cut by the Federal Reserve. However, the focus is shifting to the possibility of the Fed skipping a rate cut in December.
According to the Chicago Mercantile Exchange (CME) FedWatch tool on November 2, the interest rate futures market has assigned a 98.9% probability to a 25 basis point (bp = 0.01 percentage point) cut in the November FOMC meeting. This view is shared by experts, with all 111 economists surveyed by Reuters from October 23 to 29 predicting a 0.25 percentage point rate cut in November.
The lack of surprising economic indicators reversing the rate cut trend since the September meeting is cited as a main reason for this consensus. The September Consumer Price Index (CPI) rose 2.4% year-over-year, improving from the previous month’s 2.5%. The core Personal Consumption Expenditures (PCE) price index for August and September both matched market forecasts at 2.7%. While the labor market showed volatility with a sharp rise in job creation in September (254,000) followed by a significant drop in October (12,000), it is not expected to halt or accelerate the rate cut trend due to contributing factors like hurricane impacts and a stable unemployment rate at 4.1%. Former Cleveland Fed President Loretta Mester stated, “The economic indicators align with the Fed’s outlook,” forecasting a straightforward rate cut in the November FOMC.
Attention shifts to interest rate forecasts beyond December. While predictions of a 25 bp cut in December are prevalent, uncertainty lingers regarding both the occurrence and scale of a cut. Experts are divided in their economic assessments. Some focus on a 3.7% rise in consumer spending in Q3, up from 2.8% in the previous quarter, highlighting economic growth that could drive inflation. Inflation Insight founder Omair Sharif noted, “The core PCE suggests that prices won’t stabilize quickly for several months,” implying that “the Fed’s task is not yet complete.”
There are also forecasts that the Fed might accelerate the rate cut pace. Citigroup suggests a 50 bp cut in December, estimating that even without hurricane effects, October’s job increase was only 82,000, and high rates could further deteriorate employment indicators.
Diverging views within the Fed are also reported. Lindsey Piegza, economist at Stifel Financial, said, “The Fed is currently split between those who want to protect the labor market and those who prioritize price stability.” New York Fed President John Williams advocates for continued rate cuts, whereas Atlanta Fed President Raphael Bostic remarked, “Skipping a cut, if appropriate, should not be a concern.”
There are also expectations for heightened internal disagreements due to rising yields on 10-year Treasury bonds. Higher market rates could burden businesses and households more, potentially slowing the economy, which might drive Fed officials focused on labor market protection to advocate for additional rate cuts more strongly.
The presidential election results are also considered a variable influencing monetary policy. The scenario of Donald Trump winning and the Republican party seizing control of Congress raises concerns about the resurgence of inflation due to tariffs and immigration restrictions. Michael Gregory, economist at BMO Capital, stated, “The Fed may need to adjust its policy stance post-election.”