Markets See Another Cut At November Fed Interest Rate Meeting
Markets expect the Federal Open Market Committee to cut interest rates again by 0.25% on November 7. That’s according to a forecast by the CME FedWatch Tool. The decision will be announced at 2 p.m. ET, with a press conference 30 minutes later. This would be the second cut of this cycle after a 0.5% reduction on September 18 and would take the target range for the federal funds rate to between 4.5% and 4.75%.
The Outlook For Interest Rates
Generally, the FOMC is now likely to make monetary policy less restrictive with lower interest rates. This is because inflation has declined substantially from peak levels and the jobs market appears to be cooling somewhat. Both factors call for lower interest rates. Indeed, interest rates were raised primarily in an effort to tame inflation, and that has largely happened with the Personal Consumption Expenditures Price Index reporting a 2.2% annual rise for August as compared to the FOMC’s 2% annual goal.
Upcoming Jobs Data
October’s jobs report, which will be released on November 1, is expected to be soft after strong employment gains for September. Weakness in October’s job report could come, in part, from hurricane disruption and the Boeing strike.
Job creation weakness might add support for further interest rate cuts from the FOMC. Currently, there is support from both markets and most FOMC policymakers for the idea that the jobs market is bending rather than breaking, and that the U.S. economy will see a so-called soft landing.
As a result, markets currently view a 0.5% rate reduction as highly unlikely. However, at the September 17-18 Fed meeting, a 0.5% reduction was viewed as an unlikely outcome by markets until the final days before the meeting. If the FOMC were to become more concerned about the jobs market and recession risk, then they may chose to cut interest rates more aggressively. For now, markets expect a more measured reduction in interest rates.
Rising Longer-Term Interest Rates
One concern for the FOMC is that despite the interest rate cut in September, longer term rates have risen substantially since that decision. Yes, the Fed cut short-term rates by a relatively large 0.5%. However, since the September 18 Fed meeting, the 10-year Treasury yield has risen from 3.7% to almost 4.3%. That’s not consistent with less restrictive monetary policy and may concern the FOMC.
The challenge, of course, is that the FOMC is only able to control the short-end of the yield curve. According to September’s Summary of Economic Projections, the median short-term interest rate in 2027 was forecast to be 2.9%. It remains to be seen if the FOMC will seek to do more to bring longer-term rates lower through their discussion of longer-term policy goals. However, it’s also unclear to what extent markets are reacting to the potential political policy consequences of the 2024 election during the period since the FOMC last met.
What To Expect From The FOMC
It appears highly likely interest rates will move at least 0.25% lower on November 7. A concerning jobs report could increase the chances of a larger 0.5% cut, which is currently viewed as highly unlikely. Nonetheless, the FOMC is likely to continue to guide to lower interest rates over the medium term with the main question being how low interest rates will trend for the rest of 2024 into 2025.