You know Your Survival Guy isn’t in the predictions business. But it’s been fascinating watching the market try to predict which way the Fed will go at its December meeting.
After the last meeting, regional bank presidents and Federal Reserve Board Governors have gone back and forth over the merits of cutting in December. The late release of the September employment report, which was stronger than many expected, strong earnings, and signals from Powell and other Fed officials had seemed to convince the market that the central bank would hold rates in December.
Then, a very important and influential member of the Federal Open Market Committee, New York Fed President John Williams, made a dovish comment in a speech, saying, “I view monetary policy as being modestly restrictive, although somewhat less so than before our recent actions. Therefore, I still see room for a further adjustment in the near term to the target range for the federal funds rate to move the stance of policy closer to the range of neutral, thereby maintaining the balance between the achievement of our two goals.”
The response to Williams’s comment was a whipsaw in bets on the Fed’s direction in December toward a cut. Following Williams’s comments, Federal Reserve Board Governor Christopher Waller also came out in favor of a cut in December, telling an interviewer on Fox Business Network, “My concern is mainly labor market, in terms of our dual mandate. So I’m advocating for a rate cut at the next meeting.” Waller is being considered by the Trump administration as a potential replacement for Jerome Powell as chairman of the Federal Reserve.
In addition to that dovish language from some of the FOMC’s more influential members, employment data released by ADP today suggests an accelerating decline in payrolls over the last week. That’s the third week in a row ADP has noted declines. In the absence of federal government payroll data releases because of the shutdown, ADP data is taking on an extra importance for Fed officials looking for a direction.
Action Line: The market today believes there’s a 79% chance of a rate cut in December. But only the voting members of the FOMC have the final say, and Chairman Jerome Powell will hold an enormous amount of power over the members’ decision-making process. Your Survival Guy will be watching. Click here to subscribe to my free monthly Survive & Thrive letter.
