A round of robust economic data, including a strong September jobs report and a firmer core PCE inflation reading, following the Federal Reserve’s jumbo rate cut of 50 basis points in September is leading financial market participants to flirt with the notion that policymakers may opt not to make further reductions at their remaining 2024 meetings in November and December, said Neil Dutta, head of economics at Renaissance Macro Research, in a note.
It’s a bet that investors shouldn’t make, he argued.
“Let’s not get carried away. We are skeptical the Fed will skip a meeting this year much less breathe life into the idea of a skip and continue to see a trading opportunity in the front end of the yield curve,” Dutta wrote.
A low response rate to the September labor survey leaves those figures vulnerable to revisions, he said, while Hurricanes Helene and Milton will make for a weaker October jobs report in the runup to the Fed’s Nov. 7 policy decision. Weak housing sentiment amid a backup in mortgage rates and soft capital spending are also worth keeping in mind, he said.
“In short, there is a material risk that investment spending will slow at a time the labor markets remain weak,” Dutta said. “I wouldn’t rule out GDP with a 1-handle in Q4. Don’t bet on the Fed skipping meetings this year.”