November 2024 FOMC Preview

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What to Expect:

Quick takeaways. We dive more into the details below.

• A 25 bp cut. After the excitement at the September meeting,  November is going to be relatively less exciting. Everyone’s expecting 25, they’ve been telegraphing 25, and we think they’ll continue with 25. While some members are a bit spooked by the most recent inflation data, no one came out swinging against a November cut despite having ample opportunity to do so. The last labor market report was tainted by the Boeing strike and hurricanes, casting uncertainty onto the Fed’s view of the labor market.
• December uncertainty. The elevated inflation data does bring into question whether they will cut in December. There’s still more data to play for before the December meeting, but it seems likely that in 2024, the unemployment rate will come in below their September SEP projection (currently 4.1%, median projected 4.4%) and inflation will come in above (core PCE currently 2.65%, projected 2.6%). They won’t commit either way, but it remains to be seen how much they keep their options open in either direction—with so much noise in the labor market picture right now, we think it makes sense to keep their options open.

Latest Fedspeak and Dot Projections

The Developments That Matter:

Since the September FOMC meeting, the Committee has seen jobs reports for September and October and inflation data for September. September’s jobs data looked unambiguously strong: solid payroll growth, a reversion in the unemployment rate and a pickup in wage growth. The October data looked less solid, with a fall in the prime-age employment rate, lower-than-expected payroll growth (even with Boeing strike and hurricanes) and a soft ECI print. Quits continue to fall, but hiring in JOLTS looks to have picked up.

Meanwhile, inflation came in warmer than the Committee would like. Airfare prices came in especially hot, and we’re getting less help from core goods than previously expected. At this point, core PCE is likely to come in at the end of the year higher than what was projected by the FOMC at the September FOMC meeting.

Overall the data on both sides of the dual mandate will push the Fed to the hawkish side relative to September, as the labor market has come in somewhat stronger than projected and inflation a bit worse. The uncertainty in the most recent labor market report is not enough to take the November cut off, but expect some openness to taking the December cut off.

Key Fedspeak Since Last Meeting:

• Waller: “The latest inflation data was disappointing… I view the totality of the data as saying monetary policy should proceed with more caution.”
• Williams: “Month to month, there’s wiggles and bumps in the data, but we’ve seen this pretty steady process of inflation moving.”
• Goolsbee: “We had a lot of increases in rates… how much [of] that cumulative tightening is still coming through?”
• Logan: “A strategy of gradually lowering the policy rate… can help manage the risks.”

What we’re thinking

The labor market outlook is a little messy to read right now, but we think there’s sufficient evidence of a continued slowdown in the labor market that the Fed would be right to continue with interest rate normalization with a 25 bp cut this week. There are significant headwinds with the fall-off in election spending, hurricane effects, the Boeing strike, and elevated mortgage rates.

With more data in the pipeline between now and December, the Fed should keep its options open and not actively take the prospect of a December cut off the table. The headline unemployment rate may have retreated, but overall prime-age employment rates have stagnated, the employment cost index is soft, and quits are low. Right now, it makes sense for them not to get locked into any one view of what's going on with the labor market.

How Has The Data Evolved Since Last FOMC?